1. ABC and CVP Analysis: Multiple Products

Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow:

	Rose	Violet
Expected sales (in cases)	50,000	10,000
Selling price per case	$100	$80
Direct labor hours	36,000	6,000
Machine hours	10,000	3,000
Receiving orders	50	25
Packing orders	100	50
Material cost per case	$50	$43
Direct labor cost per case	$10	$7

The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours.

	Fixed	Variable
Direct labor benefits	$	$200,000
Machine costs	200,000*	262,000
Receiving department	225,000
Packing department	125,000
Total costs	$550,000	$462,000

^* All depreciation

Required:

1. Using the conventional approach, compute the number of cases of Rose and the number of cases of Violet that must be sold for the company to break even. In your computations, round variable unit cost to the nearest cent and round the number of break-even packages to the nearest whole number.

Break even cases of Rose	_____________ cases
Break even cases of Violet	_____________ cases

2. Using an activity-based approach, compute the number of cases of each product that must be sold for the company to break even. In your computations, round all computed amounts to the nearest cent and round the number of break-even packages to the nearest whole number.

Break even cases of Rose	_____________ cases
Break even cases of Violet	_____________ cases

2.Contribution Margin, Break-Even Units, Contribution Margin Income Statement, Margin of Safety:

Zebra Company manufactures custom-designed skins (covers) for iPods and other portable MP3 devices. Variable costs are $12.60 per custom skin, the price is $18, and fixed costs are $147,420.

Required:

1. What is the contribution margin for one custom skin? Round your answer to the nearest cent. $__________ per custom skin

2. How many custom skins must Zebra Company sell to break even? _________ custom skins

3. If Zebra Company sells 28,000 custom skins, what is the operating income? $___________

4. Calculate the margin of safety in units and in sales revenue if 28,000 custom skins are sold.

Margin of safety in units	_____________units
Margin of safety in sales revenue	$ _____________