Question

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: DVDs Equipment Sets Price $8 $25 Variable cost per unit 4 15 Total fixed cost is $101,700. 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 price of $21 and a variable cost per unit of $12. Total fixed cost must be increased by $33,900 (making total fixed cost $135,600). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same

1. what is the sales mix of DVDs, equipment sales and yoga mats?
2. compute the break even quantity of each product.
break even dvds=
break even equipment sales=
break even yoga mats =

3. prepare an income statement
b. overall contribution margin ratio =
overall break even sales revenue=

4. compute the margin of safety for the coming year in sales dollars

Answer 1

(1) The sales mix of DVDs, Equipment sets and yoga mates = 3:1:2

          Total products of Cherry blossom :-

                                                     Dvds = 13,500

               Equipment sets = 4,500

                                        yoga mates = 9,000

                  Therefore the sales mix = 13500: 4500 :9000

        To simplify we can divide it by 4500

                              Then we get the sales mix ratio = 3:1:2

(2)     Break even dvds   =16950
           Break even equipment sales = 2260
                  Break even yoga mats =   5022

     

Sl.No.	Particulars	DVDs ($)	Equipment Sets ($)	Yoga mats ($)
1.	Sales price per unit	8	25	21
2.	Variable cost per unit	4	15	12
3.	Contribution per unit (1-2)	4	10	9
4.	Fixed cost $135,600 allocated in the ratio 3:1:2	67,800	22,600	45,200
5.	Break even units (Fixed Cost/Contribution Per unit)	16950	2260	5022.22

(3)    

                                             Income statement of Cherry blossom products Inc.

Sl.No.	Particulars	DVDs ($)	Equipment Sets ($)	Yoga mats ($)	Total ($)
1.	Sales                (Price X No. of units sold)	108000	112,500	189,000	409,500
2.	Variable (Variable cost per unit X units)	54,000	67,500	108,000	229,500
3.	Contribution (1-2)	54,000	45,000	81,000	180,000
4.	Fixed cost $135,600 allocated in the ratio 3:1:2	67800	22,600	45,200	135,600
5.	Net Income/(loss) (3-4)	(13,800)	22,400	35,800	44,400

overall contribution margin ratio = (Total Contribution/ Total sales ) * 100

                                                          = ($180,000/409,500) *100

                                                          = 43.96%

                                                          = 44%

overall break even sales revenue = Total Fixed cost / overall contribution margin ratio

                                                             = $135,600/ 44%

   = $ 308,182 (approx.)

(4)   Margin of safety = Total sales - Break-even sales

                                    = $409,500 - $308,182

                                    = $101,318