Multiple-Product Break-Even and Target Profit

Vandenberg, Inc., produces and sells two products: a ceiling fan and a table fan. Vandenberg plans to sell 20,000 ceiling fans and 50,000 table fans in the coming year. Product price and cost information includes:

	Ceiling Fan				Table Fan
Price		$56				$11
Unit variable cost		$13				$6
Direct fixed cost		$23,000				$47,000

Common fixed selling and administrative expenses total $98,000.

Required:

1. What is the sales mix estimated for next year (calculated to the lowest whole number for each product)? Sales mix of ceiling fans to table fans = :

2. Using the sales mix from Requirement 1, form a package of ceiling fans and table fans. How many ceiling fans and table fans are sold at break-even? Round your intermediate calculations and final answers to the nearest whole number.

Break-even ceiling fans
Break-even table fans

Feedback

1. Sales mix is the ratio of one product to another.

2. See Cornerstone 16.5.

3. Prepare a contribution-margin-based income statement for Vandenberg, Inc., based on the unit sales calculated in Requirement 2. If an amount is zero, enter "0". Enter any negative product margin and losses with a minus sign. Do not round intermediate calculations. Round your final answers to nearest dollar.

Vandenberg, Inc.
Contribution-Margin-Income Statement
For the Coming Year
	Ceiling Fans	Table Fans	Total
Sales	$	$	$
Less: Variable expenses
Contribution margin	$	$	$
Less: Direct fixed expenses
Product margin	$	$	$
Less: Common fixed expenses
Operating income			$

Feedback

Calculate Sales, Variable Expenses, Contribution Margin and direct fixed expenses for each product then add them together. Dont forget to factor in common fixed expenses.

4. What if Vandenberg, Inc., wanted to earn operating income equal to $13,600? Calculate the number of ceiling fans and table fans that must be sold to earn this level of operating income. (Hint: Remember to form a package of ceiling fans and table fans based on the sales mix and to first calculate the number of packages to earn an operating income of $13,600.) Round your intermediate calculations and final answers to nearest number.

Break-even ceiling fans
Break-even table fans

Feedback

Add the desired operating income to fixed costs in order to calculate the number of units needed.