Question

Sales Mix and Margin of Safety

Northwest Technology Inc. manufactures and sells two products, digital game players and computer tablets. The fixed costs are $936,000, and the sales mix is 70% game players and 30% computer tablets. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price				Unit Variable Cost
Game players		$ 50				$30
Tablets		120				80

Assume that 31,500 units of digital game players and 13,500 computer tablets were sold in the current year. Assuming no change in the sales mix, determine the following for Northwest Technology Inc. Round to one decimal place.

1. Margin of safety for game players expressed as (a) units sold, (b) sales dollars, and (c) a percentage.

(a) Units sold
(b) Sales dollars		$
(c) A percentage.			%

2. Margin of safety for tablets expressed as (a) units sold, (b) sales dollars, and (c) a percentage.

(a) Units sold
(b) Sales dollars		$
(c) A percentage.			%

3. Margin of safety for total sales expressed as (a) units sold, (b) sales dollars, and (c) a percentage.

(a) Units sold
(b) Sales dollars		$
(c) A percentage.			%

Answer 1

• Requirement 1 , 2 and 3

		Requirement 1	Requirement 2	Requirement 3
[a]	Units sold	6300	2700	9000
[b]	Sales dollars	$315,000	$324,000	$639,000
[c]	A Percentage	20%	20%	20%

• Workings

		Game players	Tablets	Total
A	Selling price	$50	$120
B	Variable cost	$30	$80
C = A -B	Contribution margin	$20	$40
D	Sales Mix	70%	30%
E = C x D	Weighted average CM per unit	$14	$12	$26

A	Total Fixed Cost	$936,000
B	Total Weighted average CM per unit	$26
C = A/B	Total Break even units	36000
D = C x Sales Mix %	Game Player Break even unit	25200
E = C x Sales Mix %	Tablets Break even units	10800

		Game Player	Tablets	Total
A	Actual sales units	31500	13500	45000
B	Break even sales units	25200	10800	36000
C = A - B	Margin of Safety in 'units sold'	6300	2700	9000
D	Sale price per unit	$50	$120
E = C x D	Total margin of safety sales	$315,000	$324,000	$639,000
F = (C/A) x 100	A Percentage	20%	20%	20%