In: Accounting
Island Novelties, Inc., of Palau makes two products, Hawaiian
Fantasy and Tahitian Joy. Present revenue, cost,...
Island Novelties, Inc., of Palau makes two products, Hawaiian
Fantasy and Tahitian Joy. Present revenue, cost, and sales data on
the two products follow:
Hawaiian Fantasy Tahitian
Joy
Selling price per
unit
$15
$100
Variable expenses per
unit
9
20
Number of units sold annually
20,000
5,000
Fixed expenses total $475,800 per year. The Republic of Palau
uses the U.S. dollar as its currency.
- Assuming the sales mix given above, do the following:
- Prepare a contribution income statement showing both dollar and
percent columns for each product and for the company as a
whole.
- Compute the break-even point in dollars for the company as a
whole and the margin of safety in both dollars and percent.
- Another product, Samoan Delight, has just come onto the market.
Assume that the company could sell 10,000 units at $45 each. The
variable expenses would be $36 each. The company's fixed expenses
would not change.
- Prepare another contribution income statement, including sales
of the Samoan Delight (sales of the other two products would not
change). Carry percentage computations to one decimal place.
- Compute the company’s new break-even point in dollars and the
new margin of safety in both dollars and percent.