Question

Watt Company produces two products. Budgeted annual income statements for the two products are provided here:

	Power										Lite										Total
	Budgeted	Per					Budgeted				Budgeted	Per					Budgeted				Budgeted	Budgeted
	Number	Unit					Amount				Number	Unit					Amount				Number	Amount
Sales	200	@	$	500		=	$	100,000			800	@	$	560		=	$	448,000			1,000	$	548,000
Variable cost	200	@		290		=		(58,000	)		800	@		380		=		(304,000	)		1,000		(362,000	)
Contribution margin	200	@		210		=		42,000			800	@		180		=		144,000			1,000		186,000
Fixed cost								(12,000	)									(99,600	)				(111,600	)
Net income							$	30,000									$	44,400				$	74,400	a
a) Power Lite Total Sales Variable costs Contribution margin Fixed cost Net income (Loss) b) verify the margin of safety Margin of safety %

Answer 1

	Power	Lite	Total
Sales	$     100,000	$     448,000	$        548,000
Variable costs	$       58,000	$     304,000	$        362,000
Contribution margin	$       42,000	$     144,000	$        186,000
Fixed cost	$       12,000	$       99,600	$        111,600
Net income (Loss)	$       30,000	$       44,400	$          74,400
Margin of safety %= (sales- break even point)/Sales
Break even point=fixed cost/ contribution margin per unit
	Power	Lite	Total
Break even point (units)	57.14	553.33
Break even point (dollar sales)	$    28,571.43	$ 309,866.67	$ 338,438.10
Margin of safety	71.43%	30.83%	38.24%