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

Exercise 14

Contribution Margin Ratio, Break-Even Sales Revenue, and Margin of Safety for Multiple-Product Firm
Texas-Q Company produces and sells barbeque grills. Texas-Q sells three models: a small portable gas grill, a larger stationary gas grill, and the specialty smoker. In the coming year, Texas-Q expects to sell 20,000 portable grills, 50,000 stationary grills, and 5,000 smokers. Information on the three models is as follows:

Total fixed cost is $2,128,500.
Required:
1. What is the sales mix of portable grills to stationary grills to smokers?
2. Compute the break-even quantity of each product.
3. Prepare an income statement for Texas-Q 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.