Reference no: EM132586777
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 $15 $100
Variable expense per unit $9 $20
Number of units sold annually 20,000 5,000
Fixed expenses total $475,800 per year.
Required:
Question 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.
Question 2. The company has developed a new product called Samoan Delight that sells for $45 each and that has variable expenses of $36 per unit. If the company can sell 10,000 units of Samoan Delight without incurring any additional fixed expenses:
a. Prepare 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.
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