Kidd Company produces two products. Budgeted annual income statements for the tw

Question

Kidd Company produces two products. Budgeted annual income statements for the two products are provided here:

Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.

Determine the margin of safety based on the combined sales of the two products.

Power Lite Total Budgeted Per Budgeted Budgeted Per Budgeted Budgeted Budgeted Number Unit Amount Number Unit Amount Number Amount Sales 160 @ $ 500 = $ 80,000 640 @ $ 450 = $ 288,000 800 $ 368,000 Variable cost 160 @ 320 = (51,200 ) 640 @ 330 = (211,200 ) 800 (262,400 ) Contribution margin 160 @ 180 = 28,800 640 @ 120 = 76,800 800 105,600 Fixed cost (12,000 ) (54,000 ) (66,000 ) Net income $ 16,800 $ 22,800 $ 39,600

Explanation / Answer

Solution:

Breakeven point (In Units) = Fixed costs / Contribution margin per unit

Power = $12,000 / 180 = 66.67 units

Lite = $54,000 / 120 = 450 units

Margin of safety = (Current sales - Breakeven sales) / Current sales

= ($368,000 - $235,835) / $368,000 = 35.91%

Income Statement - Breakeven Point Particulars Power Lite Total Details Amount Details Amount Sales 66.67*$500 $33,335 450*$450 $202,500 $235,835 Variable cost 66.67*320 $21,334 450*$330 $148,500 $169,834 Contribution margin $12,001 $54,000 $66,001 Fixed costs $12,000 $54,000 $66,000 Net Income $1 $0 $1

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