Puleva Milenario SA, a company located in Toledo, Spain, manufactures and sells
ID: 2476913 • Letter: P
Question
Puleva Milenario SA, a company located in Toledo, Spain, manufactures and sells two models of luxuriously finished cutlery—Alvaro and Bazan. Present revenue, cost, and unit sales data for the two products appear below. All currency amounts are stated in terms of euros, which are indicated by the symbol €.
Fixed expenses are €660 per month.
Required: 1. Assuming the sales mix above, do the following: a. Prepare a contribution format income statement showing both euro and percent columns for each product and for the company as a whole
b. Compute the break-even point in euros for the company as a whole and the margin of safety in both euros and percent of sales The company has developed another product, Cano, that the company plans to sell for €8 each. At this price, the company expects to sell 40 units per month of the product.
The variable expense would be €6 per unit. The company’s fixed expenses would not change. a. Prepare another contribution format income statement, including sales of Cano (sales of the other two products would not change). Compute the company’s new break-even point in euros for the company as a whole and the new margin of safety in both euros and percent of sales.
Alvaro Bazan selling price per unit 4 6 variable expenses per unit 2.4 1.2 number of units sold monthly 200 units 80 unitsExplanation / Answer
Answer a. Contribution Format Income Statement Alvaro Bazan Total Amount % Amount % Amount % Sales 800 100% 480 100% 1280 100% Variable Expenses 480 60% 96 20% 576 45% Contribution 320 40% 384 80% 704 55% Fixed Expenses 660 Net Operating Income 44 Answer b. Break Even Point in euros = Fixed Cost /Contribution Margin Ratio Break Even Point in euros = 660 / 55% = 1200 Margin of safety in euros= Sales - Break even Point Margin of safety in euros = 1280 - 1200 = 80 Margin of Safety in % of Sales = (1280 - 1200) / 1280 = 6.25% Contribution Format Income Statement Alvaro Bazan Cano Total Amount % Amount % Amount % Amount % Sales 800 100% 480 100% 320 100% 1600 100% Variable Expenses 480 60% 96 20% 240 75% 816 51% Contribution 320 40% 384 80% 80 25% 784 49% Fixed Expenses 660 Net Operating Income 124 Break Even Point in euros = Fixed Cost /Contribution Margin Ratio Break Even Point in euros = 660 / 49% = 1346.939 or 1347 (approx) Margin of safety in euros= Sales - Break even Point Margin of safety in euros = 1600 - 1347 = 253 Margin of Safety in % of Sales = (1600 - 1347) / 1600 = 15.81% (Approx)
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