Question

Blue Chance Co. sells computers and video game systems. The business is divided into two divisons along product lines. Variable costing income statements for the current year are presented below:
Computer VG Systems Total

Sales $700,000 $300,000 $1,000,000

Variable Costs 420,000 210,000 630,000

Contribution Margin $280,000 $90,000 370,000

Fixed Costs 296,000

Net Income $74,000

Instruction:

A. Determine the sales mix and contribution margin ratio for each division.

B. Calculate the company's weighted average contribution margin ratio.

C. Calculate the company's break-even point in dollars

D. Determine the sales level, in dollar, for each division at the break-even point.

Answer 1

Answer:

ratio = 7 : 3  

Weighted average contribution ratio = 37 %

break-even point = $800,000

sales level = $560,000

Sales level = $240,000

Explanation:

Solution

we know here that contribution margin for computer is express as

contribution margin for computer = $\frac{280000}{700000}$

contribution margin for computer =  40%

and

Contribution margin for VG Systems is = $\frac{90000}{300000}$

Contribution margin for VG Systems is = 30%

so  

ratio = (40 + 30 ) : 30 = 7 : 3  

and

Weighted average contribution margin ratio are here

Weighted average contribution ratio = 40% × 0.7 + 30% × 0.3

Weighted average contribution ratio = 37 %

and

break even point in dollars are

break-even point = $\frac{296000}{37}$

break-even point = $800,000

and

sales level are here

sales level for computer  = 800000 × 70%  

sales level = $560,000

and

Sales level for VG systems: 800000 × 30%

Sales level = $240,000