Texas-Q Company produces and sells barbeque grills. Texas-Q sells three models:

Question

Texas-Q Company produces and sells barbeque grills. Texas-Q sells three models: a small portable gas grill, a larger stationary gas grill, and the specialty smoker. In the coming year, Texas-Q expects to sell 15,600 portable grills, 46,800 stationary grills, and 5,200 smokers. Information on the three models is as follows: Portable Stationary Smokers Price $87 $205 $252 Variable cost per unit 47 125 141 Total fixed cost is $2,082,690. Required: 1. What is the sales mix of portable grills to stationary grills to smokers? 2. Compute the break-even quantity of each product. 3. Prepare an income statement for Texas-Q for the coming year. What is the overall contribution margin ratio? Use the contribution margin ratio to compute overall break-even sales revenue. Enter the contribution margin ratio as a percentage rounded to two decimal places; round the break-even sales revenue to the nearest dollar. 4. Compute the margin of safety for the coming year.

Explanation / Answer

Solution:

Texas –Q Company

Portable Grills                        Stationary Grills         Smokers          Total

Sales (units)    15,600                         46,800                         5,200               67,600

Proportion       23.1%                          69.2%                          7.7%                100%

Break-even quantity = fixed cost/contribution margin        

Since the fixed cost for individual product categories is not available separately, the best approach is to use weighted average contribution margin method to determine the break-even quantity.

Calculation of contribution margin ratio

Contribution margin ratio = (contribution/sales price) x 100

Producct

Portable Grills

Stationary Grills

Smoker

Sales price per unit

$87

$205

$252

Variable cost

$47

$125

$141

Contribution margin

$40

$80

$111

CM ratio

45.98%

39.02%

44.04%

Weighted average contribution margin ratio = [(CM ratio of portable grills x sales proportion) + (CM ratio of Stationary Grills x sales proportion of SGs) + (CM ratio of Smoker x sales proportion)]/total sales

= [(45.98% x 23.1%) + (39.02% x 69.2%) + (44.04% x 7.7%)]/100

= 41%

Fixed cost = $2,082,690

Break-even sales in dollars = 2,082,690/41% = 5079,732

                                   

Portable grills

stationary grills

Smoker

Total

sales proportion

23.10%

69.20%

7.70%

100%

Break even sales

$1,173,418

$3,515,175

$391,139

5,079,732

sales price

$87

$205

$252

break even sales units

13,488

17,147

1,552

32,187

Income Statement for Texas –Q

Portable Grills

Stationary Grills

Smoker

Total

Sales in units

15,600

46,800

5,200

67,600

Sales price

$87

$205

$252

Sales

$1,357,200

$9,594,000

$1,310,400

$12,261,600

Less: Variable cost

$624,000

$5,850,000

$733,200

$7,207,200

Contribution margin

$733,200

$3,744,000

$577,200

$5,054,400

fixed cost

$2,082,690

Income from operations

$2,971,710

Margin of safety = actual sales – break-even sales

For the company as a whole = $12,261,600 - $5,079,732 = $7,181,868

Portable grills proportion 23.1% , hence Margin of safety = $1,659,012

Stationary grills proportion 69.2%, hence share in margin of safety = $4,969,852

Smoker proportion – 7.7%, hence share in margin of safety = $553,004

Calculation of contribution margin ratio

Contribution margin ratio = (contribution/sales price) x 100

Producct

Portable Grills

Stationary Grills

Smoker

Sales price per unit

$87

$205

$252

Variable cost

$47

$125

$141

Contribution margin

$40

$80

$111

CM ratio

45.98%

39.02%

44.04%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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