Question

The Blanket Company (TBC) manufactures two types of blankets. One is made of nylon. The other is made of wool. The budgeted per-unit contribution margin for each product follows.

	Nylon				Wool
Sales price	$	147			$	199
Variable cost per unit		(72	)			(94	)
Contribution margin per unit	$	75			$	105

TBC expects to incur annual fixed costs of $942,000. The relative sales mix of the products is 80 percent for Nylon and 20 percent for Wool.

Required

1. Determine the total number of products (units of Nylon and Wool combined) TBC must sell to earn a $111,000 profit.

2. How many units each of Nylon and Wool blankets must TBC sell to earn a $111,000 profit?

3. Prepare an income statement using the contribution margin format.

Answer 1

			A	B	A X B
Model	Selling Price	Variable cost	Contribution margin	Sales Mix
Nylon	$147	$72	$75	80	$6,000
Wool	$199	$94	$105	20	$2,100
				100	$8,100
Weighted average contribution margin =			$8,100
			100
		=	$81

Units to be sold = ($942,000 + $111,000) / $81 = 13,000

Units of Nylon to be sold = 13,000 X 80% = 10,400

Contribution margin Income Statement
	Total	Nylon	Wool
Sales	$20,46,200	$15,28,800	$5,17,400
Variable cost	$9,93,200	$7,48,800	$2,44,400
Contribution margin	$10,53,000	$7,80,000	$2,73,000
Fixed cost	$9,42,000
Net operating income	$1,11,000