Multiple-Product Break-even, Break-Even Sales Revenue

Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows:

	DVDs	Equipment Sets
Price	$8	$25
Variable cost per unit	4	15

Total fixed cost is $91,200.

Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $17 and a variable cost per unit of $9. Total fixed cost must be increased by $30,400 (making total fixed cost $121,600). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

2. Compute the break-even quantity of each product.

Break-even DVDs
Break-even equipment sets
Break-even yoga mats

3a. Prepare an income statement for Cherry Blossom Products for the coming year.

3b. What is the overall contribution margin ratio? Use the contribution margin ratio to compute overall break-even sales revenue. (Note: Round the contribution margin ratio to the nearest whole percent; round the break-even sales revenue to the nearest dollar.)

Overall contribution margin ratio

Overall break-even sales revenue

4. Compute the margin of safety for the coming year in sales dollars.