Vernon Company produces two products. Budgeted annual income
statements for the two products are provided here:
Power
Lite
Total
Budgeted
Per
Budgeted
Budgeted
Per
Budgeted
Budgeted
Budgeted
Number
Unit
Amount
Number
Unit
Amount
Number
Amount
Sales
270
@
$
690
=
$
186,300
630
@
$
580
=
$
365,400
900
$
551,700
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Question
Accounting
Vernon Company produces two products. Budgeted annual incomestatements for the two products are provided here:
Power
Lite
Total
Budgeted
Per
Budgeted
Budgeted
Per
Budgeted
Budgeted
Budgeted
Number
Unit
Amount
Number
Unit
Amount
Number
Amount
Sales
270
@
$
690
=
$
186,300
630
@
$
580
=
$
365,400
900
$
551,700
Variable cost
270
@
420
=
(113,400
)
630
@
350
=
(220,500
)
900
(333,900
)
Contribution margin
270
@
270
=
72,900
630
@
230
=
144,900
900
217,800
Fixed cost
(12,000
)
(133,200
)
(145,200
)
Net income
$
60,900
$
11,700
$
72,600
Required:
Based on budgeted sales, determine the relative sales mixbetween the two products.
Determine the weighted-average contribution margin per unit.
Calculate the break-even point in total number of units.
Determine the number of units of each product Vernon must sellto break even.
Verify the break-even point by preparing an income statement foreach product as well as an income statement for the combinedproducts.
Determine the margin of safety based on the combined sales ofthe two products.
Answer & Explanation
Solved by verified expert
4.4 Ratings (712 Votes)
Answer 1.
Power
Lite
Total
Sales in Units
270
630
900
Relative Sales
Mix
30%
70%
100%
Answer 2.
Power
Lite
Total
Relative Sales
Mix
30%
70%
100%
Contribution Per
Unit
$270
$230
Weighted Contribution
per Unit
$81
$161
$242
Answer 3.
BEP (In Units) = Fixed Cost /
Total Weighted Contribution per Unit
BEP (In
Units) = $145200/ $242
BEP (In
Units) = 600Units
Sale Mix:
Power - 600 Units X
30%
$180
Lite - 600 Units X
70%
$420
Total Units
$600
Answer 4.
Contribution Format Income Statement
Power
Lite
Total
Sales in Units
180
420
600
Sales
$1,24,200
$2,43,600
$3,67,800
Less: Variable
Costs
$75,600
$1,47,000
$2,22,600
Contribution
Margin
$48,600
$96,600
$1,45,200
Fixed Cost
$1,45,200
Net Operating
Income
-
Answer 5.Computation of
Margin of Safety
Margin of
Safety = Sales - Breakeven sales
Margin of Safety = $551700 -
$367800
Margin of
Safety = $183900
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