Homework SourseSolomon Company produces two products Budgeted annual income
Solomon Company produces two products. Budgeted annual income statements for the two products are provided here:
Required:
Based on budgeted sales, determine the relative sales mix between the two products.
Determine the weighted-average contribution margin per unit.
Calculate the break-even point in total number of units.
Determine the number of units of each product Solomon must sell to break even.
Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.
Determine the margin of safety based on the combined sales of the two products.
| Power | Lite | Total | ||||||||||||||||||||||
| Budgeted | Per | Budgeted | Budgeted | Per | Budgeted | Budgeted | Budgeted | |||||||||||||||||
| Number | Unit | Amount | Number | Unit | Amount | Number | Amount | |||||||||||||||||
| Sales | 170 | @ | $ | 760 | = | $ | 129,200 | 680 | @ | $ | 550 | = | $ | 374,000 | 850 | $ | 503,200 | |||||||
| Variable cost | 170 | @ | 420 | = | (71,400 | ) | 680 | @ | 290 | = | (197,200 | ) | 850 | (268,600 | ) | |||||||||
| Contribution margin | 170 | @ | 340 | = | 57,800 | 680 | @ | 260 | = | 176,800 | 850 | 234,600 | ||||||||||||
| Fixed cost | (18,000 | ) | (120,000 | ) | (138,000 | ) | ||||||||||||||||||
| Net income | $ | 39,800 | $ | 56,800 | $ | 96,600 | ||||||||||||||||||
Solution
a. Sales mix:
Power: 170/850 = 20%
Lite: 680/850 = 80%
b.
Total weighted average contribution per unit = $2760 / 10 = $276
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 = Operating income
$276X - $138000 = $0
$276X = $138000
X = $138000/$276 = 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 = Actual sales - Break-even sales = $503200 - $296000 = $207200
Margin of safety % = Margin of safety/Actual sales = $207200/$503200 = 41.2%
| Power | Lite | Total | |
| Contribution per unit $ | 340 | 260 | 600 |
| Sales Mix (2 : 8) | 2 | 8 | 10 |
| Total contribution $ | 680 | 2080 | 2760 |
