Question

Lindstrom Company produces two fountain pen models. Information about its products follows:

	Product A			Product B
Sales revenue	$	100,000		$	150,000
Less: Variable costs		39,000			52,500
Contribution margin	$	61,000		$	97,500
Total units sold		5,000			5,000

Lindstrom’s fixed costs total $81,000.

Required:

1. Determine Lindstrom’s weighted-average unit contribution margin and weighted-average contribution margin ratio.

2. Calculate Lindstrom’s break-even point in units and in sales revenue.

3. Calculate the number of units that Lindstrom must sell to earn a $100,000 profit.

4. Calculate Lindstrom’s margin of safety and margin of safety as a percentage of sales if it sells 8,500 total pens.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4

Determine Lindstrom’s weighted-average unit contribution margin and weighted-average contribution margin ratio. (Round your weighted-average CM to 2 decimal places and Weighted-Average CM Ratio to 1 decimal place (i.e. .123 should be entered as 12.3%)).

	Weighted-Average CM per Unit Weighted-Average CM Ratio %

Calculate Lindstrom’s break-even point in units and in sales revenue. (Round your intermediate values to one decimal places. Round your "Sales Revenue" answer to 2 decimal places and "Sales Units" answer to the nearest whole number.)

	Break-Even Sales Units Units Break Even Sales Revenue

Calculate the number of units that Lindstrom must sell to earn a $100,000 profit. (Round your answer to the nearest whole number.)

	Target Sales Units Units

Calculate Lindstrom’s margin of safety and margin of safety as a percentage of sales if it sells 8,500 total pens. (Round your margin of safety in units to the nearest whole number and your percentage of sales answer to 2 decimal places (i.e. .1234 should be entered as 12.34%))

	Margin of Safety Units Margin of Safety as Percentage of Sales %

Answer 1

1		Product A	Product B	Total
	Sales Revenue	100,000	150,000	250,000
	Less: Variable Cost	39,000	52,500	91,500
	Contribution Margin	61,000	97,500	158,500
	Total Units	5,000	5,000	10,000
	Weighted Average Contribution Margin			15.85
	Weighted Av. Sales Revenue	25.00	(250000/10000)
	Weighted Average Contribution Margin	15.85
	Weighted Average Contribution Margin Ratio	63.4%
2	Total Fixed Cost	81,000
	Weighted Average Contribution Margin	15.85
	Sales Break Even Units	5,110
	Total Fixed Cost	81,000
	Weighted Average Contribution Margin Ratio	0.63
	Sales Break Even Revenue	127,760
3	Target Profit	100,000
	Add: Fixed Cost	81,000
	Target Contribution	181,000
	Weighted Average Contribution Margin	15.85
	Target Sales Unit	11,420
4	Sales	8,500
	Break Even Units	5,110
	Margin of Safety	3,390
	Sales	8,500
	Break Even Units	5,110
	Margin of Safety	3,390
	Margin of Safety in %	40%
	(3390/8500)*100