Question

Texas-Q Company produces and sells barbeque grills. Texas-Q sells three models: a small portable gas grill, a larger stationary gas grill, and the specialty smoker. In the coming year, Texas-Q expects to sell 21,200 portable grills, 58,300 stationary grills, and 5,300 smokers. Information on the three models is as follows:

	Portable	Stationary	Smokers
Price	$95	$201	$249
Variable cost
Per unit	50	129	139

Total fixed cost is $2,358,760.

Required:

1. What is the sales mix of portable grills to stationary grills to smokers?

2. Compute the break-even quantity of each product.

3. Prepare an income statement for Texas-Q for the coming year. What is the overall contribution margin ratio? Use the contribution margin ratio to compute overall break-even sales revenue. Enter the contribution margin ratio as a percentage rounded to two decimal places; round the break-even sales revenue to the nearest dollar.

4. Compute the margin of safety for the coming year.

Answer 1

Answer 1
Calculation of sales mix of portable grills to stationary grills to smokers
	Portable	Stationary	Smokers	Total
Sales units	21,200	58,300	5,300
x Price Per Unit	$95.00	$201.00	$249.00
Total Sales	$2,014,000.00	$11,718,300.00	$1,319,700.00	$15,052,000.00
Sales Mix	13.38%	77.85%	8.77%	100%
Answer 2
Break even quantity for each product = Fixed cost allocated to product / Contribution Margin per unit i.e.(Sales price per unit - Variable cost per unit)
Computation of the break-even quantity of each product.
	Portable	Stationary	Smokers
Dividation of total fixed cost of $23,58,760 based on sales mix ratio	$315,608.73	$1,836,344.49	$206,806.77
/ Contribution Margin per unit	$45.00	$72.00	$110.00
Break even quantity for each product	7,014	25,505	1,880
Answer 3
Income statement for Texas-Q for the coming year.
	Portable	Stationary	Smokers	Total
Sales	$2,014,000.00	$11,718,300.00	$1,319,700.00	$15,052,000.00
Less : Variable Cost	$1,060,000.00	$7,520,700.00	$736,700.00	$9,317,400.00
Contribution margin	$954,000.00	$4,197,600.00	$583,000.00	$5,734,600.00
Less : Fixed Cost				$2,358,760.00
Net Income				$3,375,840.00
Overall contribution Margin % = Total Contribution Margin / Total Sales
Overall contribution Margin % = $57,34,600 / $150,52,000 = 38.10%
Overall break even sales = Fixed costs / Overall contribution margin %
Overall break even sales = $2358760 / 38.10% = $61,91,200
Answer 4
Margin of safety for coming year = Coming year sales - Overall break even sales for coming year
Margin of safety for coming year = $150,52,000 - $61,91,200 = $88,60,800