Island Novelties, Inc., of Palau makes two productsHawaiian 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	$	20		$	100
Variable expense per unit	$	13		$	30
Number of units sold annually		34,000			7,200

Fixed expenses total $651,900 per year.

2. The company has developed a new product called Samoan Delight that sells for $50 each and that has variable expenses of $30 per unit. If the company can sell 12,000 units of Samoan Delight without incurring any additional fixed expenses:

a. Prepare a revised contribution format income statement that includes Samoan Delight. Assume that sales of the other two products does not change.

b. Compute the companys revised break-even point in dollar sales. Also, compute its revised margin of safety in dollars and margin of safety percentage.

2A.

Island Novelties, Inc.,

Contribution Income Statement

Hawaiian Fantasy

Tahitian Joy

Samoan Delight

Total

Amount

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Amount

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Amount

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Amount

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2B

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