Multiple-Product Break-even, Break-Even Sales Revenue Cherry Blossom Products In
ID: 2510354 • Letter: M
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:
Total fixed cost is $98,100.
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 $20 and a variable cost per unit of $11. Total fixed cost must be increased by $32,700 (making total fixed cost $130,800). 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 sets, and yoga mats?
2. Compute the break-even quantity of each product.
units
3a. Prepare an income statement for Cherry Blossom Products for the coming year.
$
3b. What is the overall contribution margin ratio? Use the contribution margin ratio to compute overall break-even sales revenue. (Note:Round the contribution margin ratio to the nearest whole percent; round the break-even sales revenue to the nearest dollar.)
4. Compute the margin of safety for the coming year in sales dollars.
$
Explanation / Answer
DVDs Equipment Sets Yoga Mat Sales Price 8.00 25.00 20.00 Less: Variable Costs 4.00 15.00 11.00 Contribution Margin 4.00 10.00 9.00 1 DVDs Equipment Sets Yoga Mat Total Units 13500 4500 9000 27000 Sales Mix 50.00% 16.67% 33.33% (13500/27000) (4500/27000) (9000/27000) 2 Break Even Quantity: DVDs Equipment Sets Yoga Mat Contribution Margin 4.00 10.00 9.00 Sales Mix 50.00% 16.67% 33.33% Total Overall Contribution M 2.00 1.67 3.00 6.67 Total Fixed Cost 130800 Overall Contribution M 6.67 Break Even Units 19620 DVDs Equipment Sets Yoga Mat Sales Mix 50.00% 16.67% 33.33% DVDs Equipment Sets Yoga Mat Break Even Units 9810 3270 6540 Break Even Units* Sales Mix WN 3A Cherry Blossom Products Inc DVDs Equipment Sets Yoga Mat Income Statement Sales Price 8.00 25.00 20.00 For the Coming Year Less: Variable Costs 4.00 15.00 11.00 Sales 400500 Contribution Margin 4.00 10.00 9.00 Less: Variable Cost 220500 Contribution Margin 180000 Units 13500 4500 9000 Less: Fixed Costs 130800 Total Net Operating Income 49200 Sales Price 108000 112500 180000 400500 Variable Costs 54000 67500 99000 220500 3B Sales 400500 Less: Variable Cost 220500 Contribution Margin 180000 O. Contribution Margin Ratio 44.94% (180000/400500) Total Fixed Cost 130800 O. BEP Sales Revenue 291030 (130800/44.94%) 4 Margin of Safety: Actual Sales-Break Even Point (400500-291030) 109470
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