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 30,000 ceiling fans and 70,000 table fans in the coming year. Product price and cost information includes: Ceiling Fan Table Fan Price $60 $15 Unit variable cost $12 $7 Direct fixed cost $23,600 $45,000 Common fixed selling and administrative expenses total $85,000.

Required:

1. What is the sales mix estimated for next year (calculated to the lowest whole number for each product)?

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?

3. Prepare a contribution-margin-based income statement for Vandenberg, Inc., based on the unit sales calculated in Requirement 2.

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.)

Show computation please.

Answer 1

SOLUTION

(A) Sales mix of ceiling fans to table fans = 30,000:70,000 = 3:7

(B)

Product	Price (A)	Unit variable cost (B)	Unit contribution margin (C=A-B)	Sales mix (D)	Package unit contribution margin (C*D)
Ceiling fan	$60	$12	$48	3	$144
Table fan	$15	$7	$8	7	$56
Package total					$200

Breakeven packages = Total fixed cost / Package contribution margin

= ($23,600 + $45,000 + $85,000) / $200

= $153,600 / $200

= 768 packages

Break -even ceiling fans = (3 * 768) = 2,304

Break-even table fans = (7 * 768) = 5,376

(C)

Vandenberg, Inc

Contribution-Margin-Income Statement

	Ceiling Fans ($)	Table fans ($)	Total ($)
Sales	138,240	80,640	218,880
Less: Variable expense	27,648	37,632	65,280
Contribution margin	110,592	43,008	153,600
Less: Direct fixed expenses	(23,600)	(45,000)	(68,600)
Product margin	86,992	(1,992)	85,000
Less: Common fixed expenses			85,000
Operating income			0

(D) Package contribution margin is the same as that figured in Requirement 2.

Packages = (Total fixed cost + Target profit) / Package contribution margin

= ($23,600 + $45,000 + $85,000 + $14,400) / $200

= $168,000 / $200

= 840 packages

Break-even ceiling fans = (3 * 840) = 2,520

Break-even table fans = (7 * 840) = 5,880