Question

Warm Hands, a small company based in Prince Edward Island, manufactures and sells two types of lightweight gloves for runners- Warm and Cozy. Current revenue, cost, and unit sales data for the two products appear below: Selling price per pair Variable expenses per pair Number of pairs sold monthly $ 4.00 $ 1.00 2,100 units COZY $ 6.00 $ 3.00 700 units Fixed expenses are $1,800 per month. Required: 1. Assuming the sales mix above, do the following: a. Prepare a contribution format income statement showing both dollars and percentage columns for each product and for the company as a whole. (Round percentage answers to 2 decimal places.) WARM HANDS Contribution Income Statement Warm Cozy Totall E S 0 0.00 0.00 0.00 CS

Answer 1

Requirement 1(a) WARM Hands Contribution Income Statement Warm Cozy Total % 10 Sales Variable Cost Contribution margin Fixed Cost Net Income 8,400.00 2,100.00 6,300.00 100% $4,200.00 100% $12,600.00 100.00 25% $2,100.00 50% $ 4,200.00 33.33% 75% $2,100.00 50%'$ 8,400.00 66.67% $ 1,800.00 $ 6,600.00 Requirement 1(b) Break Even sales dollars : Fixed cost / Contribution margin ratio 2,700 9,900 Margin of safety in dollars Total sales - Break even sales 78.57% Margin of safety (%): margin of safet sales / total sales 600 Units Requirement 1(c) Break Even sales units Fixed cost / Weightd Contribution margin per unit weightd avg cm = (3*2+3*1)/(2+1) = 3 2200 Margin of safety in units Total sales units - Break even sales units 78.57% Margin of safety (%): margin of safet sales units / total sales units Requirement 1(d) after tax profit : $4800 tax rate : 30% i.e., before tax profit = 4800/(1-0.3) 6857.142857 Sales units required to attain profit = (1800+6857.1429)/3 2885.71428571429 Units 2886 Units Requirement 2 (a) Cozy Toasty Total WARM Hands Contribution Income Statement Warm % 8,400.00 2,100.00 6,300.00 * Toasty Sales Variable Cost Contribution margin Fixed Cost Net Income 100% $4,200.00 100% $ 9,800.00 25% $2,100.00 50% $ 7,840.00 75% $2,100.00 50% $ 1,960.00 100% $ 22,400.00 80% $ 12,040.00 20% $ 10,360.00 $ 1,800.00 $ 8,560.00 100.00 53.75% 46.25% Requirement 2 (b) Requirement 1(b) Break Even sales dollars : Fixed cost / Contribution margin ratio 3,892 18,508 Margin of safety in dollars : Total sales - Break even sales 82.63% Margin of safety (%): margin of safet sales / total sales