Question
In: Accounting
Problem 5-27 Sales Mix; Break-Even Analysis; Margin of Safety [LO5-7, LO5-9] Island Novelties, Inc., of Palau...
Problem 5-27 Sales Mix; Break-Even Analysis; Margin of Safety [LO5-7, LO5-9]
Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price, variable expense per unit and annual sales volume are as follows:
| Hawaiian Fantasy | Tahitian Joy | |||||
| Selling price per unit | $ | 30 | $ | 125 | ||
| Variable expense per unit | $ | 21 | $ | 25 | ||
| Number of units sold annually | 10,000 | 5,600 | ||||
Fixed expenses total $565,500 per year.
Required:
1. Assuming the sales mix given above, do the following:
a. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.
b. Compute the company's break-even point in dollar sales. Also, compute its margin of safety in dollars and its margin of safety percentage.
2. The company has developed a new product called Samoan Delight that sells for $50 each and that has variable expenses of $35 per unit. If the company can sell 20,000 units of Samoan Delight without incurring any additional fixed expenses:
a. Prepare a revised contribution format income statement that includes Samoan Delight. Assume that sales of the other two products does not change.
b. Compute the company’s revised break-even point in dollar sales. Also, compute its revised margin of safety in dollars and margin of safety percentage.
Solutions
Expert Solution
| Req 1A | |||||||||
| 10000 | 5,600 | ||||||||
| Island Novelties Inc | |||||||||
| Contribution income statement | |||||||||
| Hawaiian Fantasy | Tahitian joy | Total | |||||||
| Amount | % | Amount | % | Amount | % | ||||
| Sales | 300000 | 100% | 700000 | 100% | 1000000 | 100% | |||
| Variable expenses | 210000 | 70% | 140000 | 20% | 350000 | 35% | |||
| Contribution margin | 90000 | 30% | 560000 | 80% | 650000 | 65% | |||
| Fixed expenses | 565,500 | ||||||||
| Net operating income | 84,500 | ||||||||
| Req 1B | |||||||||
| Break even point in dollar sales | 870000 | ||||||||
| margin of safety in dollars | 130000 | ||||||||
| margin of safety percentage | 13.0% | ||||||||
| Break even point in dollar sales = fixed expense/contribution margin ratio | |||||||||
| 565500/65% | |||||||||
| 870000 | |||||||||
| margin of safety = actual sales - break even sales | |||||||||
| 1,000,000-870,000 | |||||||||
| 130000 | |||||||||
| Margin of safety percentage = margin of safety/actual sales | |||||||||
| 130,000/1,000,000 | |||||||||
| 13.0% | |||||||||
| Required 2A | |||||||||
| Island Novelties Inc | |||||||||
| Contribution income statement | |||||||||
| Hawaiian Fantasy | Tahitian joy | Samoan | total | ||||||
| Amount | % | Amount | % | Amount | % | amount | % | ||
| Sales | 300000 | 100% | 700000 | 100.0% | 1000000 | 100% | 2000000 | 100.0% | |
| Variable expenses | 210000 | 70% | 140000 | 20.0% | 700000 | 70% | 1050000 | 52.5% | |
| Contribution margin | 90000 | 30% | 560000 | 80.0% | 300000 | 30% | 950000 | 47.5% | |
| Fixed expenses | 565,500 | ||||||||
| Net operating income | 384,500 | ||||||||
| Req 2b | |||||||||
| Break even point in dollar sales | 1190526 | ||||||||
| margin of safety in dollars | 809474 | ||||||||
| margin of safety percentage | 40.5% | ||||||||
| Break even point in dollar sales = fixed expense/contribution margin ratio | |||||||||
| 565500/47.5% | |||||||||
| 1190526 | |||||||||
| margin of safety = actual sales - break even sales | |||||||||
| 2,000,000 - 1,190,526 | |||||||||
| 809474 | |||||||||
| Margin of safety percentage = margin of safety/actual sales | |||||||||
| 809,474/2,000,000 | |||||||||
| 40.5% | |||||||||
ekkarill92 answered 10 months agoRelated Solutions
Problem 6-27 Sales Mix; Break-Even Analysis; Margin of Safety [LO6-7, LO6-9] Island Novelties, Inc., of Palau...
Problem 6-27 Sales Mix; Break-Even Analysis; Margin of Safety
[LO6-7, LO6-9]
Island Novelties, Inc., of Palau makes two products—Hawaiian
Fantasy and Tahitian Joy. Each product’s selling price, variable
expense per unit, and annual sales volume are as follows:
Hawaiian Fantasy
Tahitian Joy
Selling price per unit
$
20
$
100
Variable expense per unit
$
13
$
40
Number of units sold annually
22,000
6,600
Fixed expenses total $506,000 per year.
Required:
1. Assuming the sales mix given above, do...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis;
Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,
LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (43,000 units × $25 per unit)
$
1,075,000
Variable expenses
752,500
Contribution margin
322,500
Fixed expenses
258,000
Net operating income
$
64,500
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis;
Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,
LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (43,000 units × $23 per unit)
$
989,000
Variable expenses
692,300
Contribution margin
296,700
Fixed expenses
237,360
Net operating income
$
59,340
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis;
Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,
LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (49,000 units × $27 per unit)
$
1,323,000
Variable expenses
926,100
Contribution margin
396,900
Fixed expenses
317,520
Net operating income
$
79,380
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,...
Problem 5-29 Changes in Cost Structure; Break-Even Analysis;
Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7,
LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (15,000 units × $30 per
unit)
$
450,000
Variable expenses
315,000
Contribution margin
135,000
Fixed expenses
90,000
Net operating income
$
45,000
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even
Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,
LO5-7, LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (48,000 units × $23 per unit)
$
1,104,000
Variable expenses
772,800
Contribution margin
331,200
Fixed expenses
264,960
Net operating income
$
66,240
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even
Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,
LO5-7, LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (48,000 units × $23 per unit)
$
1,104,000
Variable expenses
772,800
Contribution margin
331,200
Fixed expenses
264,960
Net operating income
$
66,240
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,...
Problem 5-29 (Algo) Changes in Cost Structure; Break-Even
Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5,
LO5-7, LO5-8]
Morton Company’s contribution format income statement for last
month is given below:
Sales (47,000 units × $22 per unit)
$
1,034,000
Variable expenses
723,800
Contribution margin
310,200
Fixed expenses
248,160
Net operating income
$
62,040
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general...
Problem 5-28 (Algo) Sales Mix; Multiproduct Break-Even Analysis [LO5-9] Topper Sports, Inc., produces high-quality sports equipment....
Problem 5-28 (Algo) Sales Mix; Multiproduct Break-Even Analysis
[LO5-9]
Topper Sports, Inc., produces high-quality sports equipment. The
company’s Racket Division manufactures three tennis rackets—the
Standard, the Deluxe, and the Pro—that are widely used in amateur
play. Selected information on the rackets is given below:
Standard
Deluxe
Pro
Selling price per racket
$
55.00
$
70.00
$
100.00
Variable expenses per racket:
Production
$
33.00
$
35.00
$
36.00
Selling (5% of selling price)
$
2.75
$
3.50
$
5.00
All...
Problem 5-28 (Algo) Sales Mix; Multiproduct Break-Even Analysis [LO5-9] Topper Sports, Inc., produces high-quality sports equipment....
Problem 5-28 (Algo) Sales Mix; Multiproduct Break-Even Analysis
[LO5-9]
Topper Sports, Inc., produces high-quality sports equipment. The
company’s Racket Division manufactures three tennis rackets—the
Standard, the Deluxe, and the Pro—that are widely used in amateur
play. Selected information on the rackets is given below:
Standard
Deluxe
Pro
Selling price per racket
$
40.00
$
60.00
$
90.00
Variable expenses per racket:
Production
$
22.00
$
27.00
$
31.50
Selling (5% of selling price)
$
2.00
$
3.00
$
4.50
All...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for...
- When the electricity goes out on your campus, a backup source powers the servers that handle...
- I am having trouble with my assignment and getting compile errors on the following code. The...
- Can someone show me how to write a Haskell function using snd on a list of...
- Please do in java Program 3: Give a baby $5,000! Did you know that, over the...
- This is all one question, thank you so much in advance! You must evaluate the purchase...
- 10. Consider a market in which there is a monopoly manufacturer and a mo nopoly retailer....
ADVERTISEMENT