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 20,000 ceiling fans and 50,000 table fans in the coming year. Product price and cost information includes:

Ceiling Fan Table Fan

Price: $68 $10

Unit variable cost: $11 $7

Direct fixed cost: $22,200 $41,000

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.

4. What if Vandenberg, Inc., wanted to earn operating income equal to $14,400? 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 $14,400.) Round your intermediate calculations and final answers to nearest number. Break-even ceiling fans Break-even table fans

Answer 1

a)	Estimated sales mix for the next year
	No.of Celling Fans estimated to be sold next year = 20,000
	No.of Table Fans estimated to be sold next year = 50,000
	Estimated sales mix i.e, Ceiling Fans to Table Fans = 20,000 : 50,000
			= 2 : 5
b)	Break even sales
	Break even point units =	Total Fixed expenses
		Weighted Avg Selling price - Weighted average Variable expenses
	* Weighted average selling price = ($ 68 x 2/7) +($ 10 x 5/7)				=	$          27
	* Weighted average variable expenses = ($ 11 x 2/7) +($ 7x 5/7)				=	$            8
	Total Fixed Expenses = $22,000 + $41,000 + $70,000				=	$ 133,000
	Break even point units = $133,000 / ($ 27 - $ 8)				=	7000	Units
	Break even units of Ceiling Fans = 7,000 * 2/7 = 2,000 units
	Break even units of Table Fans = 7,000 * 5/ 7 = 5,000 units
c)	contribution-margin-based income statement for Vandenberg, Inc
	Particulars	Ceiling Fans	Table Fans	Total
	Estimated Sales (Units)	2,000	5,000	7,000
	Selling price per unit	$        68.00	$        10.00
	Variable cost per unit	$      (11.00)	$        (7.00)
	Contribution per unit	$        57.00	$          3.00
	Total Contribution	$    114,000	$      15,000	$     129,000
	(No.of units x cont per unit)
	Direct cost	$    (22,200)	$    (41,000)	$      (63,200)
				$       65,800
	Common fixed and selling expenses			$      (70,000)
	Net Income			$   (4,200.00)
d)	Vandenberg, Inc., wanted to earn operating income equal to $14,400
	Particulars	Amount
	Desired net Income	$      14,400
	Add: Commom selling expenses	$      70,000
		$      84,400
	Direct Fixed cost	$      63,200
	($22,200 +$ 41,000)
	Desired contribution	$    147,600
	Contribution distribution
	Ceiling Fans ($ 147,600 x 2/ 7) =	42,171
	Table Fans ($ 147,600 x 5/ 7) =	105,429
	Contrinution per unit
	Ceiling Fan	$        57.00
	Table Fan	$          3.00
	No.of units to be sold (Contribution required / contribution per unit)
	Ceiling Fan	740
	Table Fan	35,143