Island Novelties, Inc., of Palau makes two products—Hawaiian Fantasy and Tahitian Joy. Each product's selling price, variable expense per unit and annual sales volume are as follows:

	Hawaiian Fantasy			Tahitian Joy
Selling price per unit	$	30		$	125
Variable expense per unit	$	21		$	25
Number of units sold annually		10,000			5,600

Fixed expenses total $565,500 per year.

1. COMPLETE/CORRECT Assuming the sales mix given in the question information, do the following: Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.

Island Novelties, Inc.,
Contribution Income Statement
	Hawaiian Fantasy			Tahitian Joy			Total
	Amount	%		Amount	%		Amount	%
Sales	$300,000	100	%	$700,000	100	%	$1,000,000	100	%
Variable expenses	210,000	70	%	140,000	20	%	350,000	35	%
Contribution margin	$90,000	30	%	$560,000	80	%	650,000	65	%
Fixed expenses							565,500
Net operating income							$84,500

2. COMPLETE/CORRECT Assuming the sales mix given in the question information, do the following: Compute the company's break-even point in dollar sales. Also, compute its margin of safety in dollars and its margin of safety percentage. (Do not round your intermediate calculations. Round your "Margin of safety percentage" final answer to 1 decimal place (i.e 0.1234 should be entered as 12.3). Round your other final answers to the nearest whole dollar.)

Break-even point in dollar sales	$870,000
Margin of safety in dollars	$130,000
Margin of safety percentage	13.0	%

3. INCOMPLETE The company has developed a new product called Samoan Delight that sells for $50 each and that has variable expenses of $35 per unit. If the company can sell 20,000 units of Samoan Delight without incurring any additional fixed expenses: Prepare a revised contribution format income statement that includes Samoan Delight. Assume that sales of the other two products does not change. (Round your "Percentage" answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).)

Island Novelties, Inc.,
Contribution Income Statement
	Hawaiian Fantasy			Tahitian Joy			Samoan Delight			Total
	Amount	%		Amount	%		Amount	%		Amount	%
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Variable expenses			%			%			%			%
Contribution margin	$0	100.0	%	$0	100.0	%	$0	100.0	%	0	100.0	%
Fixed expenses
Net operating income										$0

4. INCOMPLETE The company has developed a new product called Samoan Delight that sells for $50 each and that has variable expenses of $35 per unit. If the company can sell 20,000 units of Samoan Delight without incurring any additional fixed expenses: Compute the company’s revised break-even point in dollar sales. Also, compute its revised margin of safety in dollars and margin of safety percentage. (Do not round your intermediate calculations. Round your "Margin of safety percentage" final answer to 1 decimal place (i.e 0.1234 should be entered as 12.3). Round your other final answers to the nearest whole dollar.)

Break-even point in dollar sales	..................
Margin of safety in dollars
Margin of safety percentage		%

Answer rating: 100% (QA)

Requirement 1a Sales Variable expenses Contribution margin Fixed ... View the full answer