What is the break even sales in dollars and the Margin of safety in dollars for

Question

What is the break even sales in dollars and the Margin of safety in dollars for the company?

Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow:

Hawaiian Fantasy Selling price per unit $ 20 Variable expenses per unit $12   Number of units sold annually 37,000

Tahitian Joy Selling price per unit $150 Variable expenses per unit $ 30 Number of units sold annually 7,400   

Fixed expenses total $912,000 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 break-even point in dollar sales for the company as a whole and the margin of safety in both dollars and percent. Round your "Margin of safety percentage" to 1 decimal place (i.e .1234 should be entered as 12.3).

Explanation / Answer

b)

Breakeven point ($) =Fixed cost /CM ratio

             = 912000/.64

             = $ 1425000

Margin of safey ($) =Actual sales- BEP sales

        = 1850000-1425000

         = $ 425000

Margin of safety (%) =MOS /actual sales

       = 425000/1850000

     = .2297 or 22.97% [rounded to 23%]

Company Hawaiian Fantasy Tahitian Joy sales 740000+1110000= 1850000 100% 37000*20=740000 100% 150*7400=1110000 100% less:variable cost 444000+222000=666000 36 % [666000/1850000] 37000*12=444000 60%   [444000/740000] 30*7400= 222000 20% [222000/1110000] contribution margin 1184000 64% 296000 40% 888000 80% less:fixed cost -912000 Net income 272000

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