Question

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		$50				$12
Unit variable cost		$9				$8
Direct fixed cost		$22,000				$47,000

Common fixed selling and administrative expenses total $94,000.

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

Feedback

1. Sales mix is the ratio of one product to another.

2. See Cornerstone 16.5.

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
Sales	$	$	$
Less: Variable expenses
Contribution margin	$	$	$
Less: Direct fixed expenses
Product margin	$	$	$
Less: Common fixed expenses
Operating loss			$

4. What if Vandenberg, Inc., wanted to earn operating income equal to $14,800? 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 $14,800.) 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 = 2 :5

2.
Contribution Margin per unit
Ceiling Fans = $50-9 = $41 per unit
Table Fans = $12-8 = $4 per unit

Weighted Average Contribution margin per unit = ($41 x 2 + 4 x 5) / (2+5) = $14.57 per unit

Break Even Sales units = Fixed Expenses / Weighted Average Contribution margin per unit
= ($22000+47000+94000) / 14.57 = 11187 units

Ceiling Fans = 11187 x 2/7 = 3196 fans
Table Fans = 11187 x 5/7 = 7991 fans

3.

	Ceiling Fans	Table Fans	Total
Sales	$       1,59,800	$          95,892	$       2,55,692
Less Variable Expenses	$          28,764	$          63,928	$          92,692
Contribution Margin	$      1,31,036	$          31,964	$      1,63,000
Less Direct Fixed Expenses	$          22,000	$          47,000	$          69,000
Product Margin	$      1,09,036	$         -15,036	$          94,000
Less Common Fixed Expenses			$          94,000
Operating Income			$                   -

4.

Required Sales units = (Fixed Expenses+Target Income) / Weighted Average Contribution margin per unit
= ($22000+47000+94000+14800) / 14.57 = 12204 units

Ceiling Fans = 12204 x 2/7 = 3487 fans
Table Fans = 12204 x 5/7 = 8717 fans