Question

Kidd Company produces two products. Budgeted annual income statements for the two products are provided here:

	Power										Lite										Total
	Budgeted	Per					Budgeted				Budgeted	Per					Budgeted				Budgeted	Budgeted
	Number	Unit					Amount				Number	Unit					Amount				Number	Amount
Sales	160	@	$	500		=	$	80,000			640	@	$	450		=	$	288,000			800	$	368,000
Variable cost	160	@		320		=		(51,200	)		640	@		330		=		(211,200	)		800		(262,400	)
Contribution margin	160	@		180		=		28,800			640	@		120		=		76,800			800		105,600
Fixed cost								(12,000	)									(54,000	)				(66,000	)
Net income							$	16,800									$	22,800				$	39,600

Required

Based on budgeted sales, determine the relative sales mix between the two products.

Determine the weighted-average contribution margin per unit.

Calculate the break-even point in total number of units.

Determine the number of units of each product Kidd must sell to break even.

Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.

Determine the margin of safety based on the combined sales of the two products.

Answer 1

Answer 1.
	Power	Lite	Total
Sales in Units	160	640	800.00
Relative Sales Mix	20%	80%	1.00
Answer 2.
	Power	Lite	Total
Relative Sales Mix	20%	80%	1.00
Contribution Per Unit	180.00	120.00
Weighted Contribution per Unit	36.00	96.00	132.00
Answer 3.
BEP (In Units) = Fixed Cost / Total Weighted Contribution per Unit
BEP (In Units) = $66,000 / $132
BEP (In Units) = 500 Units
Sale Mix:
Power - 500 Units X 20%	100
Lite - 500 Units X 80%	400
Total Units	500
Answer 4.
Contribution Format Income Statement
	Power	Lite	Total
Sales in Units	100	400
Sales	50,000.00	180,000.00	230,000.00
Variable Costs	(32,000.00)	(132,000.00)	(164,000.00)
Contribution Margin	18,000.00	48,000.00	66,000.00
Fixed Cost			(66,000.00)
Net Operating Income			-
Answer 5.
Margin of Safety = Sales - BES
Margin of Safety = $368,000 - $230,000
Margin of Safety = $138,000