Peace River Products Inc. produces and sells yoga-training products: how to DVDs

Question

Peace River Products Inc. produces and sells yoga-training products: how to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Peace River Products sold 18,000 DVDs and 4,500 equipment sets. Information on the two products is as follows:

                                                  DVDS              Equipment Sets

Price                                             $8                           $25

Variable cost per unit                    4                             16

Total fixed cost is $85,000.

Refer to the information for Peace River Products above. 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 $18 and a variable cost per unit of $13. Total fixed cost must be increased by $29,100 (making total fixed cost $114,100). 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.

3. Prepare an income statement for Peace River Products for the coming year. What is the overall contribution margin ratio? The overall break-even sales revenue?

4. Compute the margin of safety for the coming year in sales dollars. (Note: Round the contribution margin ratio to three decimal places; round the break-even sales revenue to the nearest dollar.)

Explanation / Answer

I cannot figure this out. If anyone can help, I will give you 10 points! and tell me how you got there.

thanks!

Peace River Products, Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Peace River Products sold 18,000 DVDs and 4,500 equipment sets. Information on the two products is as follows:

Price per DVD is $8, price per equipment set is $25
Variable cost per unit for DVD is 4, variable cost per unit for equipment set is 16

Total fixed cost is $85,000.
What is the sales mix of DVDs and equipment sets?

I know that is 4:1...

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