Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 9

Multiple-Product Breakeven, Break-Even Sales Revenue
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:

Total fixed cost is $84,920.
Refer to the information for Cherry Blossom Products above. 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 $15 and a variable cost per unit of $9. Total fixed cost must be increased by $28,980 (making total fixed cost $113,900). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.
Required:
1. What is the sales mix of DVDs, equipment sets, and yoga mats?
2. Compute the break-even quantity of each product.
3. Prepare an income statement for Cherry Blossom Products for the coming year. 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 four decimal places; round the break-even sales revenue to the nearest dollar.)
4. Compute the margin of safety for the coming year in sales dollars.