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(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?

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