Lindstrom Company produces two fountain pen models Informati

Lindstrom Company produces two fountain pen models. Information about its products follows:

Lindstrom’s fixed costs total $84,500.

Required:
1. Determine Lindstrom’s weighted-average unit contribution margin and weighted-average contribution margin ratio. (Round your weighted-average CM to 2 decimal places and your CM ratio to 1 decimal place (i.e. .123 should be entered as 12.3%)).



2. Calculate Lindstrom’s break-even point in units and in sales revenue. (Round your \"Sales Revenue\" answer to 2 decimal places and \"Sales Units\" answer to the nearest whole number.)


    
3. Calculate the number of units that Lindstrom must sell to earn a $120,000 profit. (Round your answer to the nearest whole number.)


    
4. Calculate Lindstrom’s margin of safety and margin of safety as a percentage of sales if it sells 11,000 total pens. (Round your margin of safety in units to the nearest whole number and your percentage of sales answer to 2 decimal places (i.e. .1234 should be entered as 12.34%))

	Product A		Product B
Sales revenue	$	120,000		$	125,000
Less: Variable costs		60,000			66,000
Contribution margin	$	60,000		$	59,000
Total units sold		7,000			7,000

Solution

Solution: 1. Weighted-average unit contribution margin =$8.5 per unit Weighted-average contribution margin ratio =48.6% Working Notes: Weighted-average unit contribution margin =Total contribution margin of all products/Total units for all products =119,000/14,000 =$8.5 per unit Weighted-average contribution margin ratio =Total contribution margin of all products/Total SALES for all products =119,000/245,000 =0.48571428 =48.57% =48.6% Notes: i II III=I+II Product A Product B Total Sales revenue 120,000 125,000 245,000 a Less: Variable costs 60,000 66,000 126,000 b Contribution margin 60,000 59,000 119,000 c=a-b Total units sold 7,000 7,000 14,000 d 2. Break-even point in units =9,941 units Break-even point in sales revenue =$173,970.59 Working Notes: Breakeven point = Fixed cost /unit contribution margin =$84,500/$8.50 $8.50 unit contribution margin used from 1. =9,941.176 =9,941 units Break-even point in sales revenue = Fixed cost /Contribution margin ratio =$84,500/0.48571428 =$173,970.5903 contribution margin ratio = 0.48571428 from 1. =$173,970.59 3. Number of units that Lindstrom must sell to earn a $120,000 profit = 24,059units Working Notes: Target units=(Total fixed cost + target profit) / Unit Contribution Margin = (84,500 + 120,000)/8.50 = 204,500/8.50 =24,058.823 =24,059 units nearest whole no. 4. Margin of safety = 1,059 units margin of safety as a percentage of sales=9.63% Working Notes: Margin of safety units= Actual or budgeted sales - Break even sales =11,000 -9,941.176 =1,058.824 =1,059 nearest whole no. Margin of safety as a percentage of sales=Margin of safety in units/Total sales units = 1,058.824/11,000 =0.096256727 =0.0963 =9.63% Please feel free to ask if anything about above solution in comment section of the question.