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

Question

Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow: Hawaiian Fantasy Tahitian Joy Selling price per unit $ 12 $ 120 Variable expenses per unit $ 9 $ 48 Number of units sold annually 36,000 5,400 Fixed expenses total $437,000 per year. Required: 1. Assuming the sales mix given above, do the following: a. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.

Explanation / Answer

Contribution Income Statement for the year ended

Hawaiian fantasy Tahitian joy Total

Particulars Amount Percentage Amount Percentage Amount Percentage

Sales $432000 100% $648000 100% $1080000 100%

Variable expenses $324000 75% $259200 40% $583200 54%

Contribution margin $108000 25% $388800 60% $496800 46%

Fixed expenses $437000

Net income $59800.

Breakeven sales to dollars = $437000 / 0.46

= $950000

Margin of safety = $1080000 - $950000

= $130000

Margin of safety percentage = $130000 / $1080000

= 12.04%.

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