Instructions Part 1: Sales Mix Instructions and Part 2: Break-Even Part 3a: Inco

Question

Instructions Part 1: Sales Mix Instructions and Part 2: Break-Even Part 3a: Income Statement Instructions ultiple-Product Break-even, Break-Even Sales Revenue Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows: DVDs Equipment Sets $25 15 Price Variable cost per unit Total fixed cost is $97,760. Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates $8 4 at 9,000 mats can be sold at a price of $17 and a variable cost per unit of $9. Total fixed cost must be increased by $32,580 (making total ed cost $130,340). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same. Previous Check My Work3 3 more Check My Work uses remaining

Explanation / Answer

1)

Fixed cost = 130340

weight per item in calculation of Weighted Average Contribution Margin (WACM) =

OR

SALES MIX OF DVD,EQUIPMENT,MAT

DVD= 13500÷27000=.5

EQUIPMENT = 4500÷27000=.17

YOGA MATS = 9000÷27000=.33

CONTRIBUTION MARGIN (CM)

CM of DVD = selling price - variable cost

=8-4 =4

CM of EQUIPMENT = 25-15 =10

CM of YOGA MAT =17-9=8

WACM =.5×4+.17×10+.33×8=6.34

Beak - Even point = FIXED COST÷ WACM

=130340÷6.34=20558

2)

Break - Even for DVD = break even total units × DVD sales mix %

=20558×.5=10279

Break- Even fot EQUIPMENT = 20558 × .17 = 3495

Break - Even for MAT = 20558×.33 = 6784

3)

SALES = 373500

VARIABLE COST = 202500  

CONTRIBUTION =171000

FIXED COSTS =130340

PROFIT = 40660

*)sales

DVD = 13500×8 =108000

EQUIPMENT=4500 ×25 =122500

MAT =9000×17 = 153000

TOTAL = 373500

*)

variable costs

DVD =13500×4=54000

EQUIPMENT =4500×15=67500

MAT =9000×17= 81000  

TOTAL = 202500

3.b)

overall contribution margin ratio (CMR) =Total CM÷Total sales

=171000÷373500=.4578 or 45.78%

overall break - even point in revenue = FIXED COST÷ CMR

=130340÷.4578=284710

4)

Margin of safety in revenue = expeted revenue - Break even revenue

=373500-284710=88790

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