How many square yards of each product are expected to be sold at the break-even point? 2 answers below »

(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:

Oak

Hickory

Cherry

Variable cost (on a per-square-yard basis)

Direct material

$10.40

$6.50

$17.60

Direct labor

3.60

0.80

12.80

Production overhead

2.00

0.30

3.50

Selling expense

1.00

0.50

4.00

Administrative expense

0.40

0.20

0.60

Fixed overhead

$760,000

Fixed selling expense

240,000

Fixed administrative expense

200,000

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:

Oak

Hickory

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?