Refer to the information for Peace River Products above. 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 $18 and a variable cost per unit of $13.
Total fixed cost must be increased by $29,100 (making total fixed cost $114,100). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.
Peace River Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Peace River Products sold 18,000 DVDs and 4,500 equipment sets. Information on the two products is as follows:
Total fixed cost is $85,000.
1. What is the sales mix of DVDs, equipment sets, and yoga mats?
2. Compute the break-even quantity of each product.
3. Prepare an income statement for Peace River Products for the coming year. What is the overall contribution margin ratio? The overall break-even sales revenue?
4. Compute the margin of safety for the coming year in sales dollars.