Question

The Blanket Company (TBC) manufactures two types of blankets. One is made of nylon. The other is made of wool. The budgeted per-unit contribution margin for each product follows. Nylon Wool Sales price $ 145 $ 197 Variable cost per unit (75 ) (87 ) Contribution margin per unit $ 70 $ 110 TBC expects to incur annual fixed costs of $827,000. The relative sales mix of the products is 80 percent for Nylon and 20 percent for Wool. Required Determine the total number of products (units of Nylon and Wool combined) TBC must sell to earn a $109,000 profit. How many units each of Nylon and Wool blankets must TBC sell to earn a $109,000 profit? Prepare an income statement using the contribution margin format.

Answer 1

Answer:

Results are below.

Explanation:

First, we need to calculate the break-even point in units with the desired profit:

Desired profit= $109,000

Break-even point (units)= (Total fixed costs + desired profit) / Weighted average contribution margin

Weighted average contribution margin= (weighted average selling price - weighted average unitary variable cost)

Weighted average contribution margin= (145*0.8 + 197*0.2) - (75*0.8 + 87*0.2)

Weighted average contribution margin= $78

Break-even point (units)= (827,000 + 109,000) / 78

Break-even point (units)= 12,000

For each product:

Nylon= 12,000*0.8= 9,600

Wool= 12,000*0.2= 2,400

Finally, the contribution margin income statement:

Sales= (9,600*145 + 2,400*197)= 1,864,800

Total variable cost= (9,600*75 + 2,400*87)= (928,800)

Contribution margin= 936,000

Fixed costs= (827,000)

Net operating income= 109,000