Question

Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Answer 1

The overall contribution margin (CM) ratio for the company is 30% and  Overall break-even point in dollar sales is $80,000.

Contribution margin (CM) ratio

1. Overall contribution margin ratio

Overall contribution margin ratio = Total contribution margin/Total sales

Overall contribution margin ratio= $30,000/ $100,000

Overall contribution margin ratio = 30%

2. Overall break-even point in dollar sales

Overall break-even = Total fixed expenses/ Overall contribution margin ratio

Overall contribution margin ratio= $24,000/30%

Overall contribution margin ratio= $80,000

3.  Contribution format income statement

                                 Claim-jumper Makeover Total

Original dollar sales $30,000 $70,000 $100,000

Percent of total 30% 70% 100%

Sales at break-even $24,000 $56,000 $80,000

Variable expenses:

Claim-jumper

Variable expenses= ($24,000/$30,000) × $20,000

Variable expenses= $16,000

Makeover

Variable expenses=($56,000/$70,000) × $50,000

Variable expenses= $40,000

Therefore the overall contribution margin (CM) ratio for the company is 30% and  Overall break-even point in dollar sales is $80,000.

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