Question 7

Thanas Toy Bhd, makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost and sales data for two products follow:

	Avengers Toy	Madagascar Toy
Selling price per unit	RM15	RM100
Variable expenses per unit	RM9	RM20
Number of units sold monthly	20,000	5,000

Fixed expenses total RM475,800 per year. Required:

a. Assuming the sales mix given below above, do the following:

Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.

ii.Compute the break-even point in dollars for the company as a whole and the margin of safety in both dollars and percent.

The company has developed a new product to be called Seafood Toy. Assume that the company could sell 10,000 units at RM45 each. The variable expenses would be RM36 each. The companys fixed expenses would not change.

Prepare another contribution format income statement, including sales of the Seafood (sales of other two products would not change).

Compute the companys new break-even point in dollars and the new margin of safety in both dollars and percent.

The president of the company examines your figures and says, theres something strange here, our fixed costs havent 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. Youve made a mistake somewhere. Explain to the president what has happened.