Question

Multiple-Product Break-Even and Target Profit

Vandenberg, Inc., produces and sells two products: a ceiling fan and a table fan. Vandenberg plans to sell 30,000 ceiling fans and 70,000 table fans in the coming year. Product price and cost information includes:

	Ceiling Fan				Table Fan
Price		$58				$11
Unit variable cost		$15				$6
Direct fixed cost		$25,200				$43,000

Common fixed selling and administrative expenses total $70,000.

Required:

1. What is the sales mix estimated for next year (calculated to the lowest whole number for each product)?
Sales mix of ceiling fans to table fans =  :

2. Using the sales mix from Requirement 1, form a package of ceiling fans and table fans. How many ceiling fans and table fans are sold at break-even? Round your intermediate calculations and final answers to the nearest whole number.

Break-even ceiling fans
Break-even table fans

3. Prepare a contribution-margin-based income statement for Vandenberg, Inc., based on the unit sales calculated in Requirement 2. If an amount is zero, enter "0". Enter any negative product margin and losses with a minus sign. Do not round intermediate calculations. Round your final answers to nearest dollar.

Vandenberg, Inc.
Contribution-Margin-Income Statement
For the Coming Year
	Ceiling Fans	Table Fans	Total
	$	$	$
	$	$	$
	$	$	$
			$

4. What if Vandenberg, Inc., wanted to earn operating income equal to $12,400? Calculate the number of ceiling fans and table fans that must be sold to earn this level of operating income. (Hint: Remember to form a package of ceiling fans and table fans based on the sales mix and to first calculate the number of packages to earn an operating income of $12,400.) Round your intermediate calculations and final answers to nearest number.

Break-even ceiling fans
Break-even table fans

Answer 1

1. Sales mix of ceiling fans to table fans = 30,000:70,000 = 3:7

2.

Product	Price	Unit variable cost	Unit contribution margin	Sales mix	Unit contribution margin * sales mix
Ceiling fan	58	15	43	3	129
Table fan	11	6	5	7	35
Package contribution margin					164

Break-even packages = Total fixed cost/Package contribution margin    

Break-even packages = (25,200+ 43,000+70,000)/ 164= 842.68

Break-even ceiling fan = sales mix * break-even packages

Break-even ceiling fan = 3 * 719.79= 2,528

Break-even table fan = sales mix * break-even packages

Break-even ceiling fan =7 * 719.79= 5,898.78

3. Vandenberg, Inc Income Statement for the coming year

	Ceiling fan	Table fan	Total
Sales	$ 146,624	$ 64,887	$218,880
Total variable expense	$37,920	$ 35,391	$65,280
Contribution margin	$108,704	$ 29,496	$153,600
Direct fixed expenses	$25,200	$ 43,000	$68,600
Product margin	$83,504	($13,504)	$70,000
common fixed expenses			$70,000
Operating income			$0

4.

Packages = (Total fixed cost + Target profit)/Package contribution margin

Packages= (25,200 +43,000+ 70,000+12,400) / 164 = 918.3

Break-even ceiling fans = 3 * 840 = 2,754.9

Break-even table fans = 7 * 840 = 6,428