Question

Multiple-Product Break-Even and Target Profit

Vandenberg, Inc., produces and sells two products: a ceiling fan and a table fan. Vandenberg plans to sell 20,000 ceiling fans and 70,000 table fans in the coming year. Product price and cost information includes:

	Ceiling Fan				Table Fan
Price		$58				$17
Unit variable cost		$14				$4
Direct fixed cost		$23,200				$47,000

Common fixed selling and administrative expenses total $84,000.

1. What is the sales mix estimated for next year (calculated to the lowest whole number for each product)?
Sales mix of ceiling fans to table fans = ______ : ______

2. Using the sales mix from Requirement 1, form a package of ceiling fans and table fans. How many ceiling fans and table fans are sold at break-even? Round your intermediate calculations and final answers to the nearest whole number.

Break-even ceiling fans
Break-even table fans

3. Prepare a contribution-margin-based income statement for Vandenberg, Inc., based on the unit sales calculated in Requirement 2. If an amount is zero, enter "0". Enter any negative product margin and losses with a minus sign. Do not round intermediate calculations. Round your final answers to nearest dollar.

4. What if Vandenberg, Inc., wanted to earn operating income equal to $14,000? Calculate the number of ceiling fans and table fans that must be sold to earn this level of operating income. (Hint: Remember to form a package of ceiling fans and table fans based on the sales mix and to first calculate the number of packages to earn an operating income of $14,000.) Round your intermediate calculations and final answers to nearest number.

Break even ceiling fans

Break even Table Fans

Answer 1

1. Sales mix of ceiling fans to table fans = 20000:70000 = 2:7

2.

	Ceiling Fan	Table Fan	Total
Price per unit	58	17
Variable costs	14	4
Contribution margin per unit	44	13
x Sales mix	2	7
Package contribution margin per unit	88	91	179

Break-even package units = Total Fixed costs/Package contribution margin = ($23200 + $47000 + $84000)/$179 = $154200/$179 = 861.45 = 861 packages

Break-even ceiling fans = 2 x 861 = 1722

Break-even table fans = 7 x 861 = 6027

3.

Vandenberg, Inc.
Contribution Margin Income Statement
	Ceiling Fan	Table Fan	Total
Sales	99876	102459	202335
Less: Variable expenses	24108	24108	48216
Contribution margin	75768	78351	154119
Less: Direct fixed expenses	23200	47000	70200
Product margin	52568	31351	83919
Less: Common fixed expenses			84000
Operating income $			-81

Note: Ideally at break-even, the operating income should be $0 however it shows $-81 due to the rounding off difference.

4. Number of packages to be sold = (Total Fixed costs + Target profit)/Package contribution margin = ($23200 + $47000 + 84000 + $14000)/$179 = $168200/$179 = 940

Break-even ceiling fans = 2 x 940 = 1880

Break-even table fans = 7 x 940 = 6580