PROBLEM 4-25 Sales Mix; Multi-Product Break-Even Analysis; Target Profit; Margin of Safety [L06, 107, 109] 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: 2. 3. c. Selling price per pair.... Variable expenses per pair. Number of pairs sold monthly d. Warm Fixed expenses are $2,250 per month. Required: 1. Assuming the sales mix above, do the following: a. Prepare 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 sales dollars for the company as a whole and the margin of safety in both dollars and percentage of sales. 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. Compute how many pairs of gloves must be sold overall if the company wants to make an af- ter-tax target profit of $4,725 and the tax rate is 30%. Assume that the sales mix remains the same as shown above. $8.00 $2.00 600 units Cozy $12.00 $ 6.00 200 units The company has developed another type of gloves that provide better protection in extreme cold, Toasty, which the company plans to sell for $20 per pair. At this price, the company expects to sell 200 pairs per month of the product. The variable expense would be $16 per pair. The company's fixed expenses would not change. a. Prepare another contribution format income statement, including sales of Toasty (sales of the other two products would not change). Compute the company's new break-even point in sales dollars for the company as a whole and the new margin of safety in both dollars and percentage of sales. The president of the company is puzzled by your analysis. He does not understand why the break- even point has gone up even though there has been no increase in fixed expenses and the addition of the new product has increased the total CM. Explain to the president what happened.
PROBLEM 4-25 Sales Mix; Multi-Product Break-Even Analysis; Target Profit; Margin of Safety [L06, 107, 109] 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: 2. 3. c. Selling price per pair.... Variable expenses per pair. Number of pairs sold monthly d. Warm Fixed expenses are $2,250 per month. Required: 1. Assuming the sales mix above, do the following: a. Prepare 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 sales dollars for the company as a whole and the margin of safety in both dollars and percentage of sales. 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. Compute how many pairs of gloves must be sold overall if the company wants to make an af- ter-tax target profit of $4,725 and the tax rate is 30%. Assume that the sales mix remains the same as shown above. $8.00 $2.00 600 units Cozy $12.00 $ 6.00 200 units The company has developed another type of gloves that provide better protection in extreme cold, Toasty, which the company plans to sell for $20 per pair. At this price, the company expects to sell 200 pairs per month of the product. The variable expense would be $16 per pair. The company's fixed expenses would not change. a. Prepare another contribution format income statement, including sales of Toasty (sales of the other two products would not change). Compute the company's new break-even point in sales dollars for the company as a whole and the new margin of safety in both dollars and percentage of sales. The president of the company is puzzled by your analysis. He does not understand why the break- even point has gone up even though there has been no increase in fixed expenses and the addition of the new product has increased the total CM. Explain to the president what happened.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step 1: Introduction:
VIEWStep 2: 1-a) Preparation of contribution format income statement:
VIEWStep 3: 1-b) Computation of break-even point, margin of safety in sales dollar:
VIEWStep 4: 1-c) Computation of break-even point, margin of safety in units:
VIEWStep 5: 1-d) Computation of pairs of gloves required:
VIEWStep 6: 2-a) Preparation of contribution format income statement:
VIEWStep 7: 2-b) Computation of break-even point, margin of safety in sales dollar:
VIEWSolution
VIEWStep by step
Solved in 8 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education