Reference no: EM132859781

Question - Warm Hands, a small company based in Prince Edward Island, manufactures and sells two types of lightweight gloves for runners-Warm and Cozy. Current revenue, cost, and unit sales data for the two products appear below:

	Warm	Cozy
Selling price per pair	$8.00	$12.00
Variable expenses per pair	$2.00	$6.00
Number of pairs sold monthly	600 units	200 units

Fixed expenses are $2,430 per month.

Required -

1. Assuming the sales mix above, do the following:

a. Contribution format income statement showing both dollars and percentage columns for each product and for the company as a whole.

b. Compute the break-even point in dollars for the company as a whole and the margin of safety in both dollars and percentage of sales.

c. Compute the break-even point in units for the company as a whole and the margin of safety in both units (pairs of gloves) and percentage of sales.

d. Compute how many pairs of gloves must be sold overall if the company wants to make an after-tax target profit of $16,800 and the tax rate is 30%. Assume that the sales mix remains the same as shown above.

2. The company has developed another type of gloves that provide better protection in extreme cold, Toasty, which the company plans to sell for $20.00 per pair. At this price, the company expects to sell 200 pairs per month of the product. The variable expense would be $16.00 per pair. The company's fixed expenses would not change.

a. Another contribution format income statement, including sales of Toasty (sales of the other two products would not change).

b. Compute the company's new break-even point in dollars for the company as a whole and the new margin of safety in both dollars and percentage of sales.