Island Novelties, Incorporated, 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	$ 150
Variable expense per unit	$ 12	$ 30
Number of units sold annually	37,000	7,400

Fixed expenses total $912,000 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 $40 each and that has variable expenses of $32 per unit. If the company can sell 22,500 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.

Part 1

Island Novelties, Incorporated
Contribution Income Statement
	Hawaiian Fantasy	Tahitian Joy	Total
	Amount	%	Amount	%	Amount	%
Sales
Variable expenses
Contribution margin	$0	0	$0	0	0	0
Fixed expenses
Net operating income

Part Two

Break-even point in dollar sales=

Margin of saftey in dollars=

Margin of saftey percentage=

Part 3b (solve after part 3)

Break-even point in dollar sales=

Margin of saftey in dollars=

Margin of saftey percentage=

Part 3

Island Novelties, Incorporated
Contribution Income Statement
	Hawaiian Fantasy	Tahitian Joy	Samoan Delight	Total
	Amount	%	Amount	%	Amount	%	Amount	%
Sales
Variable expenses
Contribution margin	$0	0.0	$0	0.0	$0	0.0	0	0.0
Fixed expenses
Net operating income