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 Warm Cozy $ 6.00 $ 9.00 $ 1.50 $ 4.50 3,000 units1,000 units Fixed expenses are $2,160 per month.

Answer 1

Ans. 2a	WARM   HANDS
	Contribution Income Statement
		Warm		Cozy		Toasty		Total
		Dollar	%	Dollar	%	Dollar	%	Dollar	%
	Sales	$18,000	100%	$9,000	100%	$17,000	100%	$44,000	100%
	Less: Variable cost	$4,500	25%	$4,500	50%	$13,600	80%	$22,600	51%
	Contribution margin	$13,500	75%	$4,500	50%	$3,400	20%	$21,400	49%
	Less: Fixed cost							$2,160
	Net income							$19,240
	*Calculations:
	Sales   =   Number of pairs sold monthly * Selling price per pair			Variable cost   =   Number of pairs sold monthly * Variable expense per pair
	Warm	3,000 * $6		Warm	3,000 * $1.50
	Cozy	1,000 * $9		Cozy	1,000 * $4.50
	Toasty	1,000 * $17		Toasty	1,000 * $13.60
Ans. 2 b
1	Break even point in dollar sales =   Fixed cost / Contribution margin ratio
	$2,160 / 49%
	$4,408
2	Margin of safety in dollars = Actual sales in dollars - Break even sales in dollars
	$44,000 - $4,408
	$39,592
3	Margin of safety percentage = Margin of safety / Sales * 100
	$39,592 / $44,000 * 100
	89.98%