Question

Instructions 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: Equipment Sets DVDS Price $8 $25 Variable cost per unit 15 Total fixed cost is $98,550. 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 Iprice of $16 and a variable cost per unit of $9. Total fixed cost must be increased by $32,850 (making total fixed cost $131,400). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Answer 1

Solution

For making the calculations, we need the following calculation,

Particulars	DVD	Equipment Set	Extra-thick Yoga Mat	Total
Units	13500	4500	9000	27000
Sales Price per unit	$               8.00	$                25.00	$                16.00
(A) Sales Value                                 (Units X Sales Price per unit)	$ 1,08,000.00	$    1,12,500.00	$    1,44,000.00	$ 3,64,500.00
Variable Cost per unit	$               4.00	$                15.00	$                  9.00
(B) Total Variable Cost                              (Units X Variable Cost per unit)	$     54,000.00	$        67,500.00	$        81,000.00	$ 2,02,500.00
(C) Total Contribution (A - B)	$     54,000.00	$        45,000.00	$        63,000.00	$ 1,62,000.00

(1)

Sales Mix = 13500 : 4500 : 9000
Or, 3 : 1 : 2

Answer:- Sales Mix = 3:1:2

(2)

Total Contribution = $ 162,000
Total Units sold = 27,000 units
Contribution per unit = $ 162,000 / 27,000 = $ 6 per unit
Total Fixed Costs = $ 131,400
Overall Break-Even point = Fixed Costs / Contribution per unit
Or, $ 131,400 / $ 6
Or, 21,900

Therefore,
Break-even DVDs = 21,900 X 3/6 = 10,950
Break-even Equipment Sets = 21,900 X 1/6 = 3,650
Break-even Yoga Mats = 21,900 X 2/6 = 7,300

(3a)

Income statement furnished below,

Sales	$ 364,500
Less: Total Variable Costs	$ (202,500)
Contribution Margin	$ 162,000
Less: Total Fixed Costs	$ (131,400)
Operating Income	$ 30,600

(3b)

Overall Contribution Margin Ratio = (Contribution Margin / Sales) X 100
Or, (162,000 / 364,500) X 100
Or, 44% (Approx)

Overall Break-even Sales Revenue ($) = Fixed Costs / Contribution Margin Ratio
Or, $ (131,400 / 0.44)
Or, $ 298,636 (Approx)

(4)

Margin of Safety (in $) = Actual Sales (-) Break-even Sales
Or, $ (364,500 - 298,636)
Or, $ 65,864