PROBLEM 5-27 Sales Mix; Break-Even Analysis; Margin of Safety LO5-7, LO5-9 Island Novelties, Inc., of Palau makes two products-Hawaiian Fantasy and Tahitian Joy. Each product's selling price, variable expense per unit and annual sales volume are as follows: Selling price per unit.... Variable expense per unit bisch Number of units sold annually. Fixed expenses total $475,800 per year. Required: 1. Assuming the sales mix given above, do the following: a. b. Hawaiian Tahitian Fantasy Joy $15 $100 $9 $20 20,000 5,000 Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole. 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 $45 each and that has variable expenses of $36 per unit. If the company can sell 10,000 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 company's revised break-even point in dollar sales. Also, compute its revised margin of safety in dollars and margin of safety percentage. 3. The president of the company examines your figures and says, "There's something strange here. Our fixed expenses haven't changed and you show greater total contribution margin if we add the new product, but you also show our break-even point going up. With greater contribution margin, the break-even point should go down, not up. You've made a mistake somewhere." Explain to the president what has happened. baxoot