Question

Island Novelties, Inc., of Palau makes two products-Hawallan Fantasy and Tahitian Joy. Each product's selling price, variable expense per unit and annual sales volume are as follows: Hawaiian Tahitian Joy Selling price per unit Variable expense per unit Number of units sold annually Fantasy $ 12 $ 9 36,88 $ $ 120 48 5,480 Fixed expenses total $437,000 per year. Required: 1. Assuming the sales mix given above, do the following: a. Prepare a contribution format Income statement showing both dollar and percent columns for each product and for the company as a whole. b. Compute the company's break-even point in dollar sales. Also, compute its margin of safety in dollars and its margin of safety percentage. 2. The company has developed a new product called Samoan Delight that sells for $45 each and that has variable expenses of $27 per unit. If the company can sell 12.000 units of Samoan Delight without incurring any additional fixed expenses a. Prepare a revised contribution format Income statement that includes Samoan Delight. Assume that sales of the other two products does not change. b. Compute the company's revised break-even point in dollar sales. Also, compute its revised margin of safety in dollars and margin of safety percentage. Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 2A Reg 2B Assuming the sales mix given in the question information, do the following: Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole. Island Novelties, Inc., Contribution Income Statement Hawaiian Fantasy Tahitian Joy Amount % Amount % Total Amount % 150 0% $ 0 0% 0 < Reg 1A Req 1B >

Answer 1

Requirement: 1a Island Novalties, Inc., Contribution Income Statement Hawaiian Fantansy Tahitian Joy Amount % Amount % 432000 100% 648000 100% 324000 75% 259200 40% 108000 25% 388800 60% Sales Variable expenses Contribution margin Fixed expenses Net operating income Total Company Amount % 1080000 100% 583200 54% 496800 46% 437000 59800

Requirement: 1b Fixed expenses 437000 Break even point (Dollars) | Overall CM Ratio = | Break even point (Dollars) 46% 950000 Actual sales 1080000 - - Margin of safety in dollars BEP Sales = | Margin of safety in dollars 950000 130000 Margin of safety 130000 Margin of safety percentage Actual sales = Margin of safety percentage 1080000 12.0%

Requirement: 2a Island Novalties, Inc., Contribution Income Statement Hawaiian Fantansy Tahitian Joy Samon Delight Amount % Amount % Amount. % 432000 100.0% 648000 100.0% 540000 100.0% 324000 75.0% 259200 40.0% 324000 60.0% 108000 25.0% 388800 60.0% 216000 40.0% Sales Variable expenses Contribution margin Fixed expenses Net operating income Total Company Amount % 1620000 100.0% 907200 56.0% 712800 44.0% 437000 275800

Requirement: 2b + Fixed expenses 437000 Break even point in Dollars Overall CM Ratio = | Break even point (Dollars) 44.0% 993182 Actual sales 1620000 Margin of safety in dollars -| BEP Sales 993182 Margin of safety in dollars 626818 Margin of safety 626818 Margin of safety percentage - Actual sales = Margin of safety percentage . 1620000 38.7%