Island Novelties, Incorporated, 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 $ 12 $ 120 Variable expense per unit $ 9 $ 48 Number of units sold annually 36,000 5,400 Fixed expenses total $ 437,000 per year. Required: 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 $45 each and that has variable expenses of $27 per unit. If the company can sell 12,000 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.
Island Novelties, Incorporated, 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 $ 12 $ 120 Variable expense per unit $ 9 $ 48 Number of units sold annually 36,000 5,400 Fixed expenses total $ 437,000 per year. Required: 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 $45 each and that has variable expenses of $27 per unit. If the company can sell 12,000 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Island Novelties, Incorporated, 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 $ 12 $ 120 Variable expense per unit $9 $ 48 Number of units sold annually 36,000 5,400 Fixed expenses total $
437,000 per year. Required: 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 $45 each and that
has variable expenses of $27 per unit. If the company can sell 12,000 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.
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Step 1: Introduction of contribution format income statement
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VIEWStep 3: Requirement 1b - Computation of break even point and margin of safety
VIEWStep 4: Requirement 2a - Prepare revised contribution format income statement
VIEWStep 5: Requirement 2b - Computation of break even point and margin of safety
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