# Question

Sandford, Inc. makes three types of products: ties, blouses, and shirts. The following selling prices and variable costs are expected for 2009.

In addition, ﬁxed costs are as follows:

Fixed overhead.......................................... $920,000

Fixed selling expenses............................... 150,000

Fixed administrative expenses........................ 174,100

The company expects to have the following sales mix: two ties, three blouses, and one shirt.

Required:

(a) Which product is the most proﬁtable? Which is the least proﬁtable? Does this make sense to you? Explain.

(b) What is the expected break-even point for 2009?

(c) How many units of each product are expected to be sold at the break-even point?

(d) Assume that the company desires a pretax proﬁt of $1,010,360.Howmanyunitsofeach product would need to be sold to generate this proﬁt level? How much revenue in total would be required?

(e) Sandford, Inc. wants to earn $806,000 after-tax, with a tax rate of 35 percent. Use the contribution margin ratio to determine the revenue needed (round to the nearest dollar).

(f) If Sandford, Inc. earns the revenue determined in part (d), what is the company’s margin of safety in dollars and as a percentage?

In addition, ﬁxed costs are as follows:

Fixed overhead.......................................... $920,000

Fixed selling expenses............................... 150,000

Fixed administrative expenses........................ 174,100

The company expects to have the following sales mix: two ties, three blouses, and one shirt.

Required:

(a) Which product is the most proﬁtable? Which is the least proﬁtable? Does this make sense to you? Explain.

(b) What is the expected break-even point for 2009?

(c) How many units of each product are expected to be sold at the break-even point?

(d) Assume that the company desires a pretax proﬁt of $1,010,360.Howmanyunitsofeach product would need to be sold to generate this proﬁt level? How much revenue in total would be required?

(e) Sandford, Inc. wants to earn $806,000 after-tax, with a tax rate of 35 percent. Use the contribution margin ratio to determine the revenue needed (round to the nearest dollar).

(f) If Sandford, Inc. earns the revenue determined in part (d), what is the company’s margin of safety in dollars and as a percentage?

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