Answer:
a. Product T contribution margin ratio is 20.00%; and Product O contribution margin ratio is 90.00%.
b. Product T break-even point in dollar sales is $182,500.00; and Product O break-even point in dollar sales is $746,388.89.
Explanation:
a. Computation of contribution margin ratio
This can be computed using the following formula:
Contribution margin ratio = (Contribution margin / Sales) * 100 ................. (1)
Using equation (1), we therefore, we have:
Product T contribution margin ratio = ($181,500 / $907,500) * 100 = 20.00%
Product O contribution margin ratio = ($816,750 / $907,500) * 100 = 90.00%
b. Computation of the break-even point in dollar sales
This can be computed using the following formula:
Break-even point in dollar sales = Fixed cost / Contribution margin ratio ............ (2)
Using equation (2), we therefore, we have:
Product T break-even point in dollar sales = $36,500 / 20.00% = $182,500.00
Product O break-even point in dollar sales = $671,750 / 90.00% = $746,388.89
