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, 52,800 stationary grills, and 4,800 smokers. Information on the three models is as follows:

	Portable	Stationary	Smokers
Price	$87	$198	$252
Variable cost
per unit	43	133	145

Total fixed cost is $2,145,700.

	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.

Sales Mix and Breakeven

1. What is the sales mix of portable grills to stationary grills to smokers?

2. Compute the break-even quantity of each product.

Break-Even Portable Grills
Break-Even Stationary Grills
Break-Even Smokers

3(a) 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.

Contribution Margin Ratio	%
Break-Even Revenue

Contribution Margin Income Statement

3(b) Prepare an income statement for Texas-Q for the coming year. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Texas-Q Company

Income Statement

For the Coming Year

1
2
3
4
5

Margin of Safety

4. Compute the margin of safety for the coming year.

The margin of safety for the coming year is .

Answer 1

Solution 1:

Sales mix of portable grills to stationary grills to smokers = 19200:52800:4800 = 4:11:1

Solution 2:

Computation of weighted average contribution margin per unit - Texas Q
Particulars	Portable	Stationery	Smokers	Total
Selling Price	$87.00	$198.00	$252.00
Variable cost per unit	$43.00	$133.00	$145.00
Contribution margin per unit	$44.00	$65.00	$107.00
Sales Mix	4/16	11/16	1/16
Weighted average contribution per unit	$11.0000	$44.6875	$6.6875	$62.375

Breakeven point in units = Fixed costs / weighted average contribution margin per unit = $2,145,700 / $62.375

= 34400 units

Break-Even Portable Grills = 34400*4/16 = 8600 units

Break-Even Stationary Grills = 34400*11/16 = 23650 units

Break-Even Smokers = 34400 * 1/16 = 2150 units

Solution 3a:

Computation of overall contribution margin ratio
Particulars	Portable	Stationery	Smokers	Total
Sales revenue	$1,670,400.00	$10,454,400.00	$1,209,600.00	$13,334,400.00
Variable cost	$825,600.00	$7,022,400.00	$696,000.00	$8,544,000.00
Contribution margin	$844,800.00	$3,432,000.00	$513,600.00	$4,790,400.00
Overall contribution margin ratio				35.93%

Breakeven revenue = Fixed cost / contribution margin ratio = $2,145,700 / 35.93% = $5,971,890

Solution 3b:

Texas-Q
Income Statement
For the coming year
Particulars	Portable	Stationery	Smokers	Total
Sales revenue	$1,670,400.00	$10,454,400.00	$1,209,600.00	$13,334,400.00
Variable cost	$825,600.00	$7,022,400.00	$696,000.00	$8,544,000.00
Contribution margin	$844,800.00	$3,432,000.00	$513,600.00	$4,790,400.00
Fixed costs				$2,145,700.00
Net Operating income				$2,644,700.00

Solution 4:

Margin of safety for the coming year = Current sales - Breakeven sales = $13,334,400 - $5,971,890

= $7,362,510