Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitia

Question

Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price, variable expense per unit and annual sales volume are as follows:

Fixed expenses total $565,500 per year.

1. COMPLETE/CORRECT Assuming the sales mix given in the question information, do the following: Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.

2. COMPLETE/CORRECT Assuming the sales mix given in the question information, do the following: Compute the company's break-even point in dollar sales. Also, compute its margin of safety in dollars and its margin of safety percentage. (Do not round your intermediate calculations. Round your "Margin of safety percentage" final answer to 1 decimal place (i.e 0.1234 should be entered as 12.3). Round your other final answers to the nearest whole dollar.)

3. INCOMPLETE The company has developed a new product called Samoan Delight that sells for $50 each and that has variable expenses of $35 per unit. If the company can sell 20,000 units of Samoan Delight without incurring any additional fixed expenses: Prepare a revised contribution format income statement that includes Samoan Delight. Assume that sales of the other two products does not change. (Round your "Percentage" answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).)

4. INCOMPLETE The company has developed a new product called Samoan Delight that sells for $50 each and that has variable expenses of $35 per unit. If the company can sell 20,000 units of Samoan Delight without incurring any additional fixed expenses: Compute the company’s revised break-even point in dollar sales. Also, compute its revised margin of safety in dollars and margin of safety percentage. (Do not round your intermediate calculations. Round your "Margin of safety percentage" final answer to 1 decimal place (i.e 0.1234 should be entered as 12.3). Round your other final answers to the nearest whole dollar.)

Hawaiian Fantasy Tahitian Joy Selling price per unit $ 30 $ 125 Variable expense per unit $ 21 $ 25 Number of units sold annually 10,000 5,600

Explanation / Answer

Ans.                                                     Contribution income statement

                                                        Hawaiian Fantasy            Tahitian joy       Samon delight              Total

Sales                                                   $300000                        $700000           $1000000                $2000000

Contribution                                        $90000 $560000    $300000                 $950000

                                                         (10000X9)                      (5600X100)         (20000X15)

Fixed Cost                                                                                                                                          ($565500)

Profit                                                                                                                                                   $384500

P/V Ratio   = 950000/2000000 = 47.50%

Fixed cost $565500

Break Even point = Fixed cost /pv ratio = $565500/.4750 =$1190526

Margin of Safety = sales - Bep

                             = $2000000-$1190526 = $809474

% of margin of safety = $809474/$2000000 = 40.47%

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.