Question
Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost,...
Island Novelties, Inc., of Palau makes two products, Hawaiian
Fantasy and Tahitian Joy. Present revenue, cost, and sales data for
the two products follow:
| Hawaiian Fantasy | Tahitian Joy | |||||
| Selling price per unit | $ | 12 | $ | 120 | ||
| Variable expenses per unit | $ | 9 | $ | 48 | ||
| Number of units sold annually | 36,000 | 5,400 | ||||
Fixed expenses total $437,000 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 break-even point in dollar sales for the company as a whole and the margin of safety in both dollars and percent. Round your "Margin of safety percentage" to 1 decimal place (i.e .1234 should be entered as 12.3).
2. The company has developed a new product to be called Samoan Delight. Assume that the company could sell 12,000 units at $45 each. The variable expenses would be $27 each. The company’s fixed expenses would not change.
a. Prepare another contribution format income statement, including sales of the Samoan Delight (sales of the other two products would not change). Round your "Percentage" answers to 1 decimal place (i.e .1234 should be entered as 12.3).
b. Compute the company’s new break-even point in dollar sales and the new margin of safety in both dollars and percent. Round your dollar amounts to nearest whole number. Round your "Percentage" answer to 1 decimal place (i.e .1234 should be entered as 12.3).
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