Question

Multiple-Product Break-even, Break-Even Sales Revenue

Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows:

	DVDs	Equipment Sets
Price	$8	$25
Variable cost per unit	4	15

Total fixed cost is $101,750.

Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $18 and a variable cost per unit of $10. Total fixed cost must be increased by $33,910 (making total fixed cost $135,660). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Part 1: Sales Mix Instructions and Part 2: Break-Even

1. What is the sales mix of DVDs, equipment sets, and yoga mats?

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

Break-even DVDs	units
Break-even equipment sets	units
Break-even yoga mats	units

Part 3a: Income Statement

3a. Prepare an income statement for Cherry Blossom Products for the coming year.

Cherry Blossom Products Inc.
Income Statement
For the Coming Year
	$
	$
	$

Part 3b: Contribution Margin Ratio and Part 4: Margin of Safety

3b. What is the overall contribution margin ratio? Use the contribution margin ratio to compute overall break-even sales revenue. (Note: Round the contribution margin ratio to the nearest whole percent; round the break-even sales revenue to the nearest dollar.)

Overall contribution margin ratio		%
Overall break-even sales revenue	$

4. Compute the margin of safety for the coming year in sales dollars.
$

Answer 1

Part 1	Sales mix analysis
			DVDs	Equipment set	Yoga mats	Total
	Sales unit	a	13,500	4,500	9,000	27,000
	Sales mix(unit wise)	b	50.00%	16.67%	33.33%	100%
Part 2	Break-even analysis
	Cherry Blossom product Inc. sells three product and is therefore it is a multi product company.
	*Break-even point(unit) =Total Fixed cost/(Weighted avg selling price-Weighted avg variable exp)
	Total fixed cost		$   135,660.00
	Weighted avg selling price= (8*50%+25*16.67%+18*33.33%)= $14.17
	Weighted avg Variable cost= (4*50%+15*16.67%+10*33.33%)= $7.83
	*Total Break-even point(unit) =$1,35,660/(14.17-7.83)= 21,420 units
	Now, break-even units for individual product:
			DVDs	Equipment set	Yoga mats	Total
	Sales mix(unit wise)	a	50.00%	16.67%	33.33%	100%
	Break-even point (units)	b=21,420*a	10,710	3,570	7,140	21,420
Part 3	a)Income Statement for Cherry Blossom Products for the coming year
			DVDs	Equipment set	Yoga mats	Total
	Sales unit	a	13,500	4,500	9,000	27,000
	Selling price p.u.	b	$                8.00	$              25.00	$            18.00
	Variable cost p.u.	c	$                4.00	$              15.00	$            10.00
	Sales Revenue	d=a*b	$   108,000.00	$    112,500.00	$ 162,000.00	$         382,500.00
	Less: Variable cost	e=a*c	$     54,000.00	$      67,500.00	$    90,000.00	$         211,500.00
	Contribution	f=d-e	$     54,000.00	$      45,000.00	$    72,000.00	$         171,000.00
	Less: Fixed cost					$         135,660.00
	Net income					$           35,340.00
Part 3	b)Contribution margin ratio & Break-even sales
	Overall Contribution margin ratio= Total Contribution/Total Sales
	Overall Contribution margin ratio= $171,000/$382,500= 45%
	Overall Break-even sales revenue =Fixed cost/Contribution Ratio
	Overall Break-even sales revenue =$135,660/45%= $3,03,450
	The company's Margin of safety in units for fiscal year 1999 is a)28000 units
Part 4	Margin of Safety
	Margin of safety(Dollars) =Current sale revenue-Breakeven sales revenue
	Margin of safety(Dollars) =$3,82,500-$3,03,450= $79,050