Question:
(Comprehensive; multiproduct) Nature's Own makes three types of wood flooring: Oak, Hickory, and Cherry. The company's tax rate is 40 percent. The following costs are expected for 2011:
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Oak
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Hickory
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Cherry
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Variable cost (on a per-square-yard basis)
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|
|
|
|
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Direct material
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$10.40
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$6.50
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$17.60
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Direct labor
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|
3.60
|
0.80
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12.80
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|
Production overhead
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2.00
|
0.30
|
3.50
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|
Selling expense
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1.00
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0.50
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4.00
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Administrative expense
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|
0.40
|
0.20
|
0.60
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|
Fixed overhead
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$760,000
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|
|
|
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Fixed selling expense
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240,000
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|
|
|
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Fixed administrative expense
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200,000
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|
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Per-square-yard expected selling prices are as follows: Oak, $32.80; Hickory, $16.00; and Cherry, $50.00. The expected sales mix is as follows:
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Oak
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Hickory
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Cherry
|
|
Square yards
|
9,000
|
72,000
|
6,000
|
a. Calculate the break-even point for 2011.
b. How many square yards of each product are expected to be sold at the break-even point?
c. If the company wants to earn pre-tax profit of $800,000, how many square yards of each type of flooring would it need to sell? How much total revenue would be required?
d. If the company wants to earn an after-tax profit of $680,000, determine the revenue needed using the contribution margin percentage approach.
e. If the company achieves the revenue determined in part (d), what is the margin of safety (1) in dollars and (2) as a percentage?