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 16,200 portable grills, 59,400 stationary grills, and 5,400 smokers. Information on the three models is as follows:

	Portable	Stationary	Smokers
Price	$89	$195	$253
Variable cost
per unit	45	131	140

Total fixed cost is $2,078,310.

	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

Solution 1:

sales mix of portable grills to stationary grills to smokers = 16200:59400:5400 =3:11:1

Solution 2:

Computation of weighted average contribution margin per unit - Texas Q
Particulars	Portable	Stationery	Smokers	Total
Selling Price	$89.00	$195.00	$253.00
Variable cost per unit	$45.00	$131.00	$140.00
Contribution margin per unit	$44.00	$64.00	$113.00
Sales Mix	3/15	11/15	1/15
Weighted average contribution per unit	$8.8000	$46.9333	$7.5333	$63.2667

Breakeven quantity =Fixed costs / weighted average contribution margin per unit

= $2,078,310 / $63.2667 = 32850 units

Breakeven quantity -

Portable model = 32850 * 3/15 = 6570 units

Stationery = 32850 * 11/15 = 24090 units

Smokers = 32850*1/15 = 2190 units

Solution 3:

Texas-Q
Income Statement
For the coming year
Particulars	Portable	Stationery	Smokers	Total
Sales revenue	$1,441,800.00	$11,583,000.00	$1,366,200.00	$14,391,000.00
Variable cost	$729,000.00	$7,781,400.00	$756,000.00	$9,266,400.00
Contribution margin	$712,800.00	$3,801,600.00	$610,200.00	$5,124,600.00
Fixed costs				$2,078,310.00
Net Operating income				$3,046,290.00

Overall contribution margin ratio = $5,124,600 / $14,391,000 = 35.61%

Breakeven sales revenue = Fixed cost / contribution margin ratio = $2,078,310/35.61% = $5,836,310

Solution 4:

Margin of safety for the coming year = Current sales - Breakeven sales = $14,391,000 - $5,836,310 = $8,554,690