Question

Fanning Company produces two products. Budgeted annual income statements for the two products are provided as follows.

	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:

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

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

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

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

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

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

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

	Relative percentage for Power % Relative percentage for Lite %

Determine the weighted-average contribution margin per unit.

	Weighted-average contribution margin per unit

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

	Break-even point units

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

	Required sales for Power units Required sales for Lite units

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)

Determine the margin of safety based on the combined sales of the two products. (Round your answer to 1 decimal place.(i.e., 0.234 should be entered as 23.4))

	Margin of safety %

Answer 1

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

	Relative percentage for Power 190/950 = 20 % Relative percentage for Lite 80% %

Determine the weighted-average contribution margin per unit.

	Weighted-average contribution margin per unit 240*20%+170*80% = 184

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

	Break-even point 92000/184 = 500 units

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

	Required sales for Power 500*20% = 100 units Required sales for Lite 400 units

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

Determine the margin of safety based on the combined sales of the two products. (Round your answer to 1 decimal place.(i.e., 0.234 should be entered as 23.4))

	Margin of safety (537700-283000/537700) = 47.4 %