Multiple-Product Break-Even and Target Profit Vandenberg, Inc., produces and sel
ID: 2526026 • Letter: M
Question
Multiple-Product Break-Even and Target Profit
Vandenberg, Inc., produces and sells two products: a ceiling fan and a table fan. Vandenberg plans to sell 20,000 ceiling fans and 50,000 table fans in the coming year. Product price and cost information includes:
Ceiling Fan Table Fan
Price: $68 $10
Unit variable cost: $11 $7
Direct fixed cost: $22,200 $41,000
Common fixed selling and administrative expenses total $70,000.
Required:
1. What is the sales mix estimated for next year (calculated to the lowest whole number for each product)? Sales mix of ceiling fans to table fans =
2. Using the sales mix from Requirement 1, form a package of ceiling fans and table fans. How many ceiling fans and table fans are sold at break-even? Round your intermediate calculations and final answers to the nearest whole number.
Break-even ceiling fans:
Break-even table fans:
3. Prepare a contribution-margin-based income statement for Vandenberg, Inc., based on the unit sales calculated in Requirement 2. If an amount is zero, enter "0". Enter any negative product margin and losses with a minus sign. Do not round intermediate calculations. Round your final answers to nearest dollar.
4. What if Vandenberg, Inc., wanted to earn operating income equal to $14,400? Calculate the number of ceiling fans and table fans that must be sold to earn this level of operating income. (Hint: Remember to form a package of ceiling fans and table fans based on the sales mix and to first calculate the number of packages to earn an operating income of $14,400.) Round your intermediate calculations and final answers to nearest number. Break-even ceiling fans Break-even table fans
Explanation / Answer
a) Estimated sales mix for the next year No.of Celling Fans estimated to be sold next year = 20,000 No.of Table Fans estimated to be sold next year = 50,000 Estimated sales mix i.e, Ceiling Fans to Table Fans = 20,000 : 50,000 = 2 : 5 b) Break even sales Break even point units = Total Fixed expenses Weighted Avg Selling price - Weighted average Variable expenses * Weighted average selling price = ($ 68 x 2/7) +($ 10 x 5/7) = $ 27 * Weighted average variable expenses = ($ 11 x 2/7) +($ 7x 5/7) = $ 8 Total Fixed Expenses = $22,000 + $41,000 + $70,000 = $ 133,000 Break even point units = $133,000 / ($ 27 - $ 8) = 7000 Units Break even units of Ceiling Fans = 7,000 * 2/7 = 2,000 units Break even units of Table Fans = 7,000 * 5/ 7 = 5,000 units c) contribution-margin-based income statement for Vandenberg, Inc Particulars Ceiling Fans Table Fans Total Estimated Sales (Units) 2,000 5,000 7,000 Selling price per unit $ 68.00 $ 10.00 Variable cost per unit $ (11.00) $ (7.00) Contribution per unit $ 57.00 $ 3.00 Total Contribution $ 114,000 $ 15,000 $ 129,000 (No.of units x cont per unit) Direct cost $ (22,200) $ (41,000) $ (63,200) $ 65,800 Common fixed and selling expenses $ (70,000) Net Income $ (4,200.00) d) Vandenberg, Inc., wanted to earn operating income equal to $14,400 Particulars Amount Desired net Income $ 14,400 Add: Commom selling expenses $ 70,000 $ 84,400 Direct Fixed cost $ 63,200 ($22,200 +$ 41,000) Desired contribution $ 147,600 Contribution distribution Ceiling Fans ($ 147,600 x 2/ 7) = 42,171 Table Fans ($ 147,600 x 5/ 7) = 105,429 Contrinution per unit Ceiling Fan $ 57.00 Table Fan $ 3.00 No.of units to be sold (Contribution required / contribution per unit) Ceiling Fan 740 Table Fan 35,143
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