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 15,900 portable grills, 53,000 stationary grills, and 5,300 smokers. Information on the three models is as follows:

	Portable	Stationary	Smokers
Price	$92	$201	$251
Variable cost
per unit	43	132	137

Total fixed cost is $2,016,120.

	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

Sales Mix of Portable grills to Stationary grills to smokers
=15900:53000:5300
I.e. 3:10:1
	Portable	Stationary	Smokers	Total
Price	$92	$201	$251
Variable cost	43	132	137
Contribution Margin per unit	$49	$69	$114
Sales Mix	3	10	1	14
Contribution Margin	$147	$690	$114	951
Weighted average Contribution Margin per Unit				67.92857143
Break even Quantity = Fixed costs/Weighted average CM	29,680	units
Portable	=29680*3/14	6,360	units
Stationary	=29680*10/14	21,200	units
Smokers	=29680*1/14	2,120	units
Income Statement
	Portable	Stationary	Smokers	Total
Price	1,462,800	10,653,000	1,330,300	13,446,100
Variable cost	683,700	6,996,000	726,100	8,405,800
Contribution Margin per unit	779,100	3,657,000	604,200	5,040,300
Fixed costs				2,016,120
Net Operating Income				3,024,180
CM Ratio = CM/Sales	37.49%
Break even Sales dollars = Fixed costs/CM Ratio	5,377,754
4. Margin of Safety = Sales - Break even Sales	8,068,346