Question
In: Accounting
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price,...
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price, variable expense per unit and annual sales volume are as follows:
| Hawaiian Fantasy | Tahitian Joy | |||||
| Selling price per unit | $ | 20 | $ | 125 | ||
| Variable expense per unit | $ | 14 | $ | 25 | ||
| Number of units sold annually | 30,000 | 5,200 | ||||
Fixed expenses total $652,400 per year.
Required:
1. Assuming the sales mix given above, do the following:
a. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.
b. Compute the company's break-even point in dollar sales. Also, compute its margin of safety in dollars and its margin of safety percentage.
2. The company has developed a new product called Samoan Delight that sells for $50 each and that has variable expenses of $40 per unit. If the company can sell 12,500 units of Samoan Delight without incurring any additional fixed expenses:
a. Prepare a revised contribution format income statement that includes Samoan Delight. Assume that sales of the other two products does not change.
b. Compute the company’s revised break-even point in dollar sales. Also, compute its revised margin of safety in dollars and margin of safety percentage.
Solutions
Expert Solution
| Req 1A | |||||||||
| 30,000 | 5,200 | ||||||||
| Island Novelties Inc | |||||||||
| Contribution income statement | |||||||||
| Hawaiian Fantasy | Tahitian joy | Total | |||||||
| Amount | % | Amount | % | Amount | % | ||||
| Sales | 600000 | 100% | 650000 | 100% | 1250000 | 100% | |||
| Variable expenses | 420000 | 70% | 130000 | 20% | 550000 | 44% | |||
| Contribution margin | 180000 | 30% | 520000 | 80% | 700000 | 56% | |||
| Fixed expenses | 652,400 | ||||||||
| Net operating income | 47,600 | ||||||||
| Req 1B | |||||||||
| Break even point in dollar sales | 1165000 | ||||||||
| margin of safety in dollars | 85000 | ||||||||
| margin of safety percentage | 6.8% | ||||||||
| Break even point in dollar sales = fixed expense/contribution margin ratio | |||||||||
| 652400/56% | |||||||||
| 1165000 | |||||||||
| margin of safety = actual sales - break even sales | |||||||||
| 1,250,000-1,165,000 | |||||||||
| 85000 | |||||||||
| Margin of safety percentage = margin of safety/actual sales | |||||||||
| 85000/1,250,000 | |||||||||
| 6.8% | |||||||||
| Required 2A | |||||||||
| Island Novelties Inc | |||||||||
| Contribution income statement | |||||||||
| Hawaiian Fantasy | Tahitian joy | Samoan | total | ||||||
| Amount | % | Amount | % | Amount | % | amount | % | ||
| Sales | 600000 | 100% | 650000 | 100.0% | 625000 | 100% | 1875000 | 100.0% | |
| Variable expenses | 420000 | 70% | 130000 | 20.0% | 500000 | 80% | 1050000 | 56.0% | |
| Contribution margin | 180000 | 30% | 520000 | 80.0% | 125000 | 20% | 825000 | 44.0% | |
| Fixed expenses | 652,400 | ||||||||
| Net operating income | 172,600 | ||||||||
| Req 2b | |||||||||
| Break even point in dollar sales | 1482727 | ||||||||
| margin of safety in dollars | 392273 | ||||||||
| margin of safety percentage | 20.9% | ||||||||
| Break even point in dollar sales = fixed expense/contribution margin ratio | |||||||||
| 652400/44% | |||||||||
| 1482727.3 | |||||||||
| margin of safety = actual sales - break even sales | |||||||||
| 1,875,000-1,482,727 | |||||||||
| 392273 | |||||||||
| Margin of safety percentage = margin of safety/actual sales | |||||||||
| 392273/1,875,000 | |||||||||
| 20.9% | |||||||||
ekkarill92 answered 2 years agoRelated Solutions
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price,...
Island Novelties,
Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian
Joy. Each product's selling price, variable expense per unit and
annual sales volume are as follows
Hawaiian Fantasy
Tahitian Joy
Selling price per unit
$
20
$
100
Variable expense
per unit
$
13
$
30
Number of units
sold annually
34,000
7,200
Fixed expenses total
$651,900 per year.
Required:
1. Assuming the sales
mix given above, do the following:
a. Prepare a
contribution format income statement showing both...
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price,...
Island Novelties,
Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian
Joy. Each product's selling price, variable expense per unit and
annual sales volume are as follows:
Hawaiian Fantasy
Tahitian Joy
Selling price per unit
$
20
$
100
Variable expense
per unit
$
13
$
30
Number of units
sold annually
34,000
7,200
Fixed expenses total
$651,900 per year.
2. The company has
developed a new product called Samoan Delight that sells for $50
each and that has variable...
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price,...
Island Novelties, Inc., of Palau makes two products—Hawaiian
Fantasy and Tahitian Joy. Each product's selling price, variable
expense per unit and annual sales volume are as follows: Hawaiian
Fantasy Tahitian Joy Selling price per unit $ 20 $ 100 Variable
expense per unit $ 13 $ 30 Number of units sold annually 34,000
7,200 Fixed expenses total $651,900 per year. Required: 1. Assuming
the sales mix given above, do the following: a. Prepare a
contribution format income statement showing both...
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price,...
Island Novelties, Inc., of Palau makes two products—Hawaiian
Fantasy and Tahitian Joy. Each product's selling price, variable
expense per unit and annual sales volume are as follows:
Hawaiian Fantasy
Tahitian Joy
Selling price per
unit
$
25
$
120
Variable expense per unit
$
15
$
42
Number of units sold
annually
14,000
7,500
Fixed expenses total $580,000 per year.
Required:
1. Assuming the sales mix given above, do the following:
a. Prepare a contribution format income statement showing both...
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price,...
Island Novelties, Inc., of Palau makes two products—Hawaiian
Fantasy and Tahitian Joy. Each product's selling price, variable
expense per unit and annual sales volume are as follows: Hawaiian
Fantasy Tahitian Joy Selling price per unit $ 30 $ 125 Variable
expense per unit $ 21 $ 25 Number of units sold annually 10,000
5,600 Fixed expenses total $565,500 per year. Required: 1. Assuming
the sales mix given above, do the following: a. Prepare a
contribution format income statement showing both...
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price,...
Island Novelties, Inc., of Palau makes two products—Hawaiian
Fantasy and Tahitian Joy. Each product's selling price, variable
expense per unit and annual sales volume are as follows:
Hawaiian Fantasy
Tahitian Joy
Selling price per unit
$
20
$
150
Variable expense per unit
$
12
$
30
Number of units sold annually
37,000
7,400
Fixed expenses total $912,000 per year.
Required:
1. Assuming the sales mix given above, do the following:
a. Prepare a contribution format income statement showing both...
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price,...
Island Novelties, Inc., of Palau makes two products—Hawaiian
Fantasy and Tahitian Joy. Each product's selling price, variable
expense per unit and annual sales volume are as follows:
Hawaiian Fantasy
Tahitian Joy
Selling price per
unit
$
40
$
140
Variable expense per unit
$
24
$
28
Number of units sold
annually
39,000
6,000
Fixed expenses total $907,200 per year.
Required:
1. Assuming the sales mix given above, do the following:
a. Prepare a contribution format income statement showing both...
Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price, variable...
Novelties, Inc., of Palau makes two products—Hawaiian Fantasy
and Tahitian Joy. Each product's selling price, variable expense
per unit and annual sales volume are as follows:
Hawaiian Fantasy
Tahitian Joy
Selling price per unit
$
12
$
120
Variable expense per unit
$
9
$
48
Number of units sold annually
36,000
5,400
Fixed expenses total $437,000 per year.
Required:
1. Assuming the sales mix given above, do the following:
a. Prepare a contribution format income statement showing both
dollar...
Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost,...
Island Novelties, Inc., of Palau makes two products,
Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales
data for the two products follow:
Hawaiian Fantasy
Tahitian Joy
Selling price per unit
$20.00
$25.00
Variable expenses per unit
$14.00
$10.00
Number of units sold annually
25,000
10,000
Fixed expenses total $270,000 per year. The Republic of
Palau uses the U.S. dollar as its currency.
Required:
1. Assuming the sales mix given above, do the
following:
a. Prepare a contribution format...
Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost,...
Island Novelties, Inc., of Palau makes two products, Hawaiian
Fantasy and Tahitian Joy. Present revenue, cost, and sales data for
the two products follow:
Hawaiian Fantasy
Tahitian
Joy
Selling price per unit
$
14
$
120
Variable expenses per unit
$
7
$
36
Number of units sold annually
24,000
5,200
Fixed expenses total $510,300 per year.
Required:
1.
Assuming the sales mix given above, do the following:
a.
Prepare a contribution format income statement showing both
dollar and percent...
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