Question

Break-Even Analysis & Margin of Safety (with more than one product) P 6-B The Medal Company make two products, Gold and Silver. Sales and cost data for these products follow. Gold Silver Sales (in units) 100,000 10,000 Selling price per unit $25 $150 Variable expenses per unit 100 Fixed expenses, for the company, are $900,000. 12 Required: 1) Using the above, complete the following: a) Prepare a contribution form income statement displaying dollar amounts and percentages for each product and the company as a whole. b) Compute the break-even point for the company. Calculate this company's margin safety both in dollars and as a percent. 2) Assume the company adds a third product, Bronze. Each Bronze will sell for $100 and variable expenses per unit will be $90. Sales are anticipated to be 20,000 units. Fixed costs will remain unchanged for the company. a) Prepare a contribution form income statement displaying dollar amounts and percentages for each product and the company as a whole. b) Compute the break-even point for the company. Calculate this company's margin safety both in dollars and as a percent. 3) Bronze has added sales to the company. Why has the break-even point increased with the addition of the new product?

Answer 1

Bronze Silner (a) Gold Sale 250 Oos 1 500 quo 20000 I 200 oo VC 100 000 18 00 00 2ooooo Contribution Sou ooo $ 13woo 1300 Gou Xloo 500 ou Contribution % xloo 2000w Xlo 200 OUOU 2500 OU 15 000vo. 52% 33.33% 10% a whole :- Contribution for company cas Total Contribution Xloo Total Sale 2oooooo N Xloo نه دي 6 z 33.33%

( B EP Fixed cost Total sales Х Totul contribution 9ooooo N. 6 Goooood Х 2oooo $ 27oo our Margin of safety z Actud sale - sales cut Bel Gooooa 2700 OU = $ 33 20000 33 ou ow N. margin of safety (%) Xlow Goooooo = 55 %

с a (3) Breck even point will increare when new product is introduced and Became I which Total contribution margin falls down In this care, Company has introduced Bronze product mix, g which Total contributin margin has decreased from 45% to 33.33% becousse in its g as a result y which Breck Even Point has increared.