FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows:
| DVDs | Equipment Sets | |
| Price | $8 | $25 |
| Variable cost per unit | 4 | 15 |
Total fixed cost is $110,100.
Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $20 and a variable cost per unit of $11. Total fixed cost must be increased by $36,700 (making total fixed cost $146,800). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.
Compute the break-even quantity of each product.
| Break-even DVDs | units |
| Break-even equipment sets | units |
| Break-even yoga mats | units |
Prepare an income statement for Cherry Blossom Products for the coming year.
| Cherry Blossom Products Inc. | |
| Income Statement | |
| For the Coming Year | |
| Sales | $ |
| Total variable cost | |
| Contribution margin | $ |
| Total fixed cost | |
| Operating income | $ |
What is the overall contribution margin ratio? Use the contribution margin ratio to compute overall break-even sales revenue. (Note: Round the contribution margin ratio to the nearest whole percent; round the break-even sales revenue to the nearest dollar.)
| Overall contribution margin ratio | % | |
| Overall break-even sales revenue | $ |
4. Compute the margin of safety for the coming year in sales dollars.
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