Question

Fanning 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	190	@	$	590		=	$	112,100			760	@	$	560		=	$	425,600			950	$	537,700
Variable cost	190	@		350		=		(66,500	)		760	@		390		=		(296,400	)		950		(362,900	)
Contribution margin	190	@		240		=		45,600			760	@		170		=		129,200			950		174,800
Fixed cost								(19,000	)									(73,000	)				(92,000	)
Net income							$	26,600									$	56,200				$	82,800

    

Required:

a.     Based on budgeted sales, determine the relative sales mix between the two products.

b.     Determine the weighted-average contribution margin per unit.

c.      Calculate the break-even point in total number of units.

d.     Determine the number of units of each product Fanning must sell to break even.

e.      Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.

f.      Determine the margin of safety based on the combined sales of the two products.

Please assist on the below:

Required A

Based on budgeted sales, determined, the relative sales mix between the two products.

What is the Relative percentage for Power          ?       %

What is the Relative percentage for Life         ?   %

Required B

Determine the weighted- average contribution margin per unit.

What is the weighted-average contribution margin per unit?  

Required C

Calculate the break-even point in the total number of units.

What is the Break-even point in units?

Required D

Determine the number of units of each product Fanning must sell to break even.

What is the required sales of power in units?

What is the required sales for Lite in units

Required E

Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.                                

	Power	Lite	Total
Sales
Variable costs
Contribution margin
Fixed cost
Net income (Loss)

Required F

Determine the margin of safety based on the combined sales of the two products. (Round your answer to 1 decimal place.(i.e., .234 should be entered as 23.4))

What is the Margin of safety = ?      %

Answer 1

a. Relative percentage for Power: 190/950 = 20%

Relative percentage for Lite: 760/950 = 80%

b.

	Power	Lite	Total
Contribution per unit $	240	170	410
Sales Mix (2 : 8)	2	8	10
Total contribution $	480	1360	1840

Total weighted average contribution per unit = $1840 / 10 = $184

c. Break-even point in total number of units: 500 units

Assume the total volume of sales (units) = X

For break-even: (Weighted average contribution per unit x X) - Total Fixed costs = Net income

$184X - $92000 = $0

$184X = $92000

X = $92000/$184 = 500 units

d. Number of break-even units of each product

Power: 500 units x 20% = 100 units

Lite: 500 units x 80% = 400 units

e.

	Power	Lite	Total
Sales	59000	224000	283000
Variable costs	35000	156000	191000
Contribution margin	24000	68000	92000
Fixed cost	24000	68000	92000
Net income (Loss)	0	0	0

f. Margin of safety: 47.4%

Margin of safety = Actual sales - Break-even sales = $537700 - $283000 = $254700

Margin of safety % = Margin of safety/Actual sales = $254700/$537700 = 47.4%