Island Novelties, Inc., of Palau makes two products, Hawaian Fantasy and Tahitia
ID: 2418126 • Letter: I
Question
Island Novelties, Inc., of Palau makes two products, Hawaian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow: Selling price per unit Variable expenses per unit Number of units sold annually Hawaiian T ahitian Fantasy Joy $20 $ 140 $9 $ 35 18,000 6,000 Fixed expenses total $710,700 per year. Required 1. Assuming the sales mix given above, do the following: a. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole. Island Novelties, Inc., Contribution Income Statement Tahitian Joy Total Hawaiian FantaS Amount Amount Amount % 0 0 0 0 0 0 0 0%$ 0 0% 0 0% 0Explanation / Answer
a)
ISLAND NOVELTIES INC.
CONTRIUTION INCOME STATEMENT
Hawaiian fantasy
Tahitian joy
Total
Amount
%
Amount
%
Amount
%
Sale price per unit
360000
100
840000
100
1200000
100
Variable cost per unit
162000
45%
210000
25
372000
31
Contribution
198000
55%
630000
75
828000
69
Fixed cost
710700
Net profit
117300
b)
1. Breakeven point = fixed cost / contribution margin (in %)
= 710700 / 0.69
= 1030000
2. Margin of safety in dollars = actual sales – breakeven sales
= 1200000 - 1030000
3. Margin of safety in percentage = (actual sales – breakeven sales)/ selling price per unit *100
= (1200000 – 1030000)/1200000 *100
2.
ISLAND NOVELTIES INC.
CONTRIUTION INCOME STATEMENT
Hawaiian fantasy
Tahitian joy
Total
Amount
%
Amount
%
Amount
%
Amount
%
Sale price per unit
360000
100
840000
100
900000
100
2100000
100
Variable cost per unit
162000
45%
210000
25
720000
80
1092000
52
0
Contribution
198000
55%
630000
75
180000
20
1008000
48
Fixed cost
710700
Net profit
297300
1. Breakeven point = fixed cost / contribution margin (in %)
= 710700 / 0.52
= 1366731
2 . Margin of safety in dollars = actual sales – breakeven sales
= 2100000 - 1366731
=733269
3. Margin of safety in percentage = (actual sales – breakeven sales)/ selling price per unit *100
= (2100000 – 1366731)/2100000 *100
=82.5%
ISLAND NOVELTIES INC.
CONTRIUTION INCOME STATEMENT
Hawaiian fantasy
Tahitian joy
Total
Amount
%
Amount
%
Amount
%
Sale price per unit
360000
100
840000
100
1200000
100
Variable cost per unit
162000
45%
210000
25
372000
31
Contribution
198000
55%
630000
75
828000
69
Fixed cost
710700
Net profit
117300
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