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 $84,920.

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 $15 and a variable cost per unit of $9. Total fixed cost must be increased by $28,980 (making total fixed cost $113,900). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Unless otherwise instructed, round all total dollar figures (e.g., sales, total contribution margin) to the nearest dollar, breakeven or target units to the nearest unit, and unit costs and unit contribution margins to the nearest cent. Round ratios to four significant digits.

1. What is the sales mix of DVDs, equipment sets, and yoga mats? 3:1:2

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

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

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 two decimal places; 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. $_____

Cherry Blossom Products Inc. Income Statement For the Coming Year Sales $ Total variable cost Contribution margin $ Total fixed cost Operating income $