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	$	15		$	100
Variable expense per unit	$	9		$	20
Number of units sold annually		20,000			5,000

Fixed expenses total $475,800 per year.

Required:

1. Assuming the sales mix given above, do the following:

a. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.

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

2. The company has developed a new product called Samoan Delight that sells for $45 each and that has variable expenses of $36 per unit. If the company can sell 10,000 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.

Complete this question by entering your answers in the tabs below.

• Req 1A
• Req 1B
• Req 2A
• Req 2B

Assuming the sales mix given above, 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	%	$500,000	100	%			%
Variable expenses	180,000	60	%			%			%
Contribution margin	$120,000	40	%	$500,000	100	%	0	0	%
Fixed expenses
Net operating income							$0