Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow. Fixed expenses total 475,800 per year. The Republic of Palau uses the U.S. dollar as its currency.
(b) The company has developed a new product to be called Samoan Delight. Assume that the company could sell 10,000 units at 45 each. The variable expenses would be 36 each. The company's fixed expenses would not change. (i). Prepare another contribution format income statement, including sales of the Samoan Delight (sales of the other two products would not change). (ii). Compute the company's new break-even point in dollars and the new margin of safety in both dollars and percent.

Generally, to calculate the break-even point for your business, divide your fixed costs by your gross profit margin. This gives the company the amount it needs to reach breakeven. When it comes to stocks, if a trader buys a stock with his $200, and nine months later he drops from $250 and then he hits $200 again, it's gone bankrupt.

The breakeven point is the point where total costs equal total revenues. In other words, there is no loss and no profit for SMEs. This means that we have reached a stage of production where the cost of production equals the revenue of the product.

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