Reference no: EM132896268

Questions -

1. 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$30 $100 Variable expense per unit$21 $25 Number of units sold annually 30,000 6,000

Fixed expenses total $652,800 per year.

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.

2. The company has developed a new product called Samoan Delight that sells for $30 each and that has variable expenses of $18 per unit. If the company can sell 12,500 units of Samoan Delight without incurring any additional fixed expenses:

a. Prepare a 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.