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 $91,800.

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 $16 and a variable cost per unit of $10. Total fixed cost must be increased by $30,600 (making total fixed cost $122,400). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Compute the break-even quantity of each product.

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

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

Cherry Blossom Products Inc. Income Statement For the Coming Year

Sales $___

Total variable cost $___

Contribution margin $___

Total fixed cost $___

Operating income $___

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. $___