Compute the break-even point in dollar sales for each product. Henna Company produces and sells two products, Carvings and Mementos. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 42,000 units of each product. Income statements for each product follow. CarvingsMementosSales$ 747,600$ 747,600Variable costs523,320149,520Contribution margin224,280598,080Fixed costs108,280482,080Income$ 116,000$ 116,000 Contribution Margin RatioNumerator:Break-Even Point in DollarsNumerator:Contribution Margin RatioBreak-Even Point in Dollars111111PRODUCT CARVINGSDenominator:Denominator:PRODUCT MEMENTOS11=11=Contribution margin ratioBreak-even point in dollarsContribution margin ratioBreak-even point in dollars

Solution... Contribution margin ratio = Contribution margin / Sales Revenue PRODUCT CARVINGS Contribution margin ratio Numerator / Denominator Contribution margin / Sales = Contribution margin ratio $ 224,280 / $ 747,600 = 30% Break even point in dollars Numerator / Denominator Fixed cost / Contribution margin ratio = Break even in Dollars $ 108,280 / 30% = $ 360,933.33 PRODUCT MEMENTOS Contribution margin ratio Numerator / Denominator Contribution margin / Sales = Contribution margin ratio $ 598,080 / $ 747,600 = 80% Break even point in dollars Numerator / Denominator Fixed cost / Contribution margin ratio = Break even in Dollars $ 428,080 / 80% = $ 535,100

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Compute the break-even point in dollar sales for each product.

Henna Company produces and sells two products, Carvings and Mementos. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 42,000 units of each product. Income statements for each product follow.

	Carvings	Mementos
Sales	$ 747,600	$ 747,600
Variable costs	523,320	149,520
Contribution margin	224,280	598,080
Fixed costs	108,280	482,080
Income	$ 116,000	$ 116,000

Contribution Margin Ratio
Numerator:
Break-Even Point in Dollars
Numerator:
Contribution Margin Ratio
Break-Even Point in Dollars
1
1
1
1
1
1
PRODUCT CARVINGS
Denominator:
Denominator:
PRODUCT MEMENTOS
11
=
11
=
Contribution margin ratio
Break-even point in dollars
Contribution margin ratio
Break-even point in dollars

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Follow-up Question

Assume that the company expects sales of each product to decline to 25,000 units next year with no change in unit selling price. Prepare a contribution margin income statement for the next year (as shown above with columns for each of the two products).