Fanning Company produces two products. Budgeted annual income statements for the
ID: 2608853 • Letter: F
Question
Fanning Company produces two products. Budgeted annual income statements for the two products are provided here:
Power
Lite
Total
Budgeted
Per
Budgeted
Budgeted
Per
Budgeted
Budgeted
Budgeted
Number
Unit
Amount
Number
Unit
Amount
Number
Amount
Sales
190
@
$
590
=
$
112,100
760
@
$
560
=
$
425,600
950
$
537,700
Variable cost
190
@
350
=
(66,500
)
760
@
390
=
(296,400
)
950
(362,900
)
Contribution margin
190
@
240
=
45,600
760
@
170
=
129,200
950
174,800
Fixed cost
(19,000
)
(73,000
)
(92,000
)
Net income
$
26,600
$
56,200
$
82,800
Required:
a. Based on budgeted sales, determine the relative sales mix between the two products.
b. Determine the weighted-average contribution margin per unit.
c. Calculate the break-even point in total number of units.
d. Determine the number of units of each product Fanning must sell to break even.
e. Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.
f. Determine the margin of safety based on the combined sales of the two products.
Please assist on the below:
Required A
Based on budgeted sales, determined, the relative sales mix between the two products.
What is the Relative percentage for Power ? %
What is the Relative percentage for Life ? %
Required B
Determine the weighted- average contribution margin per unit.
What is the weighted-average contribution margin per unit?
Required C
Calculate the break-even point in the total number of units.
What is the Break-even point in units?
Required D
Determine the number of units of each product Fanning must sell to break even.
What is the required sales of power in units?
What is the required sales for Lite in units
Required E
Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.
Power
Lite
Total
Sales
Variable costs
Contribution margin
Fixed cost
Net income (Loss)
Required F
Determine the margin of safety based on the combined sales of the two products. (Round your answer to 1 decimal place.(i.e., .234 should be entered as 23.4))
What is the Margin of safety = ? %
Power
Lite
Total
Budgeted
Per
Budgeted
Budgeted
Per
Budgeted
Budgeted
Budgeted
Number
Unit
Amount
Number
Unit
Amount
Number
Amount
Sales
190
@
$
590
=
$
112,100
760
@
$
560
=
$
425,600
950
$
537,700
Variable cost
190
@
350
=
(66,500
)
760
@
390
=
(296,400
)
950
(362,900
)
Contribution margin
190
@
240
=
45,600
760
@
170
=
129,200
950
174,800
Fixed cost
(19,000
)
(73,000
)
(92,000
)
Net income
$
26,600
$
56,200
$
82,800
Explanation / Answer
a. Relative percentage for Power: 190/950 = 20%
Relative percentage for Lite: 760/950 = 80%
b.
Total weighted average contribution per unit = $1840 / 10 = $184
c. Break-even point in total number of units: 500 units
Assume the total volume of sales (units) = X
For break-even: (Weighted average contribution per unit x X) - Total Fixed costs = Net income
$184X - $92000 = $0
$184X = $92000
X = $92000/$184 = 500 units
d. Number of break-even units of each product
Power: 500 units x 20% = 100 units
Lite: 500 units x 80% = 400 units
e.
f. Margin of safety: 47.4%
Margin of safety = Actual sales - Break-even sales = $537700 - $283000 = $254700
Margin of safety % = Margin of safety/Actual sales = $254700/$537700 = 47.4%
Power Lite Total Contribution per unit $ 240 170 410 Sales Mix (2 : 8) 2 8 10 Total contribution $ 480 1360 1840Related Questions
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