Reference no: EM132586777

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:

                               Hawaiian Fantasy         Tahitian Joy

Selling price per unit      $15                         $100

Variable expense per unit $9                      $20

Number of units sold annually 20,000        5,000

Fixed expenses total $475,800 per year.

Required:

Question 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.

b. Compute the company's break-even point in dollar sales. Also, compute its margin of safety in dollars and its margin of safety percentage.

Question 2. The company has developed a new product called Samoan Delight that sells for $45 each and that has variable expenses of $36 per unit. If the company can sell 10,000 units of Samoan Delight without incurring any additional fixed expenses:

a. Prepare revised contribution format income statement that includes Samoan Delight. Assume that sales of the other two products does not change.

b. 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.