Question

Multiple-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
Price	$8	$25
Variable cost per unit	4	15

Total fixed cost is $98,100.

Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $20 and a variable cost per unit of $11. Total fixed cost must be increased by $32,700 (making total fixed cost $130,800). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same

1. What is the sales mix of DVDs, equipment sets, and yoga mats?

2. Compute the break-even quantity of each product.

Break-even DVDs

units

Break-even equipment sets

units

Break-even yoga mats

units

3a. Prepare an income statement for Cherry Blossom Products for the coming year.

Cherry Blossom Products Inc.

Income Statement

For the Coming Year

$

$

$

3b. What is the overall contribution margin ratio? Use the contribution margin ratio to compute overall break-even sales revenue. (Note:Round the contribution margin ratio to the nearest whole percent; round the break-even sales revenue to the nearest dollar.)

Overall contribution margin ratio		%
Overall break-even sales revenue	$

4. Compute the margin of safety for the coming year in sales dollars.
$

Answer 1

		DVDs	Equipment Sets	Yoga Mat
	Sales Price	8.00	25.00	20.00
	Less: Variable Costs	4.00	15.00	11.00
	Contribution Margin	4.00	10.00	9.00
1		DVDs	Equipment Sets	Yoga Mat	Total
	Units	13500	4500	9000	27000
	Sales Mix	50.00%	16.67%	33.33%
		(13500/27000)	(4500/27000)	(9000/27000)
2	Break Even Quantity:	DVDs	Equipment Sets	Yoga Mat
	Contribution Margin	4.00	10.00	9.00
	Sales Mix	50.00%	16.67%	33.33%	Total
	Overall Contribution M	2.00	1.67	3.00	6.67
	Total Fixed Cost	130800
	Overall Contribution M	6.67
	Break Even Units	19620
		DVDs	Equipment Sets	Yoga Mat
	Sales Mix	50.00%	16.67%	33.33%
		DVDs	Equipment Sets	Yoga Mat
	Break Even Units	9810	3270	6540	Break Even Units* Sales Mix
							WN
3A	Cherry Blossom Products Inc							DVDs	Equipment Sets	Yoga Mat
	Income Statement						Sales Price	8.00	25.00	20.00
	For the Coming Year						Less: Variable Costs	4.00	15.00	11.00
	Sales	400500					Contribution Margin	4.00	10.00	9.00
	Less: Variable Cost	220500
	Contribution Margin	180000					Units	13500	4500	9000
	Less: Fixed Costs	130800									Total
	Net Operating Income	49200					Sales Price	108000	112500	180000	400500
							Variable Costs	54000	67500	99000	220500
3B	Sales	400500
	Less: Variable Cost	220500
	Contribution Margin	180000
	O. Contribution Margin Ratio	44.94%	(180000/400500)
	Total Fixed Cost	130800
	O. BEP Sales Revenue	291030
		(130800/44.94%)
4	Margin of Safety:
	Actual Sales-Break Even Point
	(400500-291030)
	109470