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 19,200 portable grills, 43,200 stationary grills, and 4,800 smokers. Information on the three models is as follows:

	Portable	Stationary	Smokers
Price	$92	$205	$251
Variable cost
per unit	44	127	138

Total fixed cost is $2,175,120.

	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

	Portable	Stationary	Smokers	Total
Contribution Margin per unit(Selling price - variable cost)	48	78	113
Sales Mix	4	9	1	14
Contribution Margin	192	702	113	1007
Weighted average CM Per unit				71.92857143
Break even Sales Quantity = Total Fixed costs/Weighted average CM per unit
=2,175,120/71.92857
30,240	units
Portable	8,640	units
Stationary	19,440	units
Smokers	2,160	units
Income Statement
	Portable	Stationary	Smokers	Total
Sales Revenue	1,766,400	8,856,000	1,204,800	11,827,200
Variable costs	844,800	5,486,400	662,400	6,993,600
Contribution Margin	921,600	3,369,600	542,400	4,833,600
Fixed costs				2,175,120
Net Operating Income				2,658,480
Overall CM ratio	40.87%
Break even sales revenue = Fixed costs/Overall CM Ratio	5,322,240.000
4.Margin of Safety = Sales - break even sales	6,504,960.000