Question

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below:
Claimjumper Makeover Total
Sales $106,000 $53,000 $159,000
Variable expenses 32,800 6,950 39,750
Contribution margin $73,200 $46,050 119,250
Fixed expenses 82,575
Net operating income $36,675

Requied:

a. Compute the overall contribution margin (CM) ratio for the company.
b. Compute the overall break-even point for the company in sales dollars.
c. Verify the overall break-even point for the company by constructing a contribution format income statement showing the appropriate levels of sales for the two products.

Answer 1

Answer:

a. Overall contribution margin = Total contribution / Total sales

= $119250 / $159000

=0.75

=75%

b. Overall Break even point in sales dollars  = Fixed costs / contribution margin

=$82575 / 75%

=$110,100

c. Income statement showing the appropriate levels of sales for the two products.

Sales at Break even is in the ratio of 2:1

Total = 1 + 2 = 3

Claim-jumper ratio = 2/3

Makeover ratio= 1/3

 

                          Claim-jumper      Makeover          Total

Sales                      $106,000           $53000             $159000  

Break even sales    $73400            $36700              $110100

Working:

2/3 * $159,000 = $106,000 ; 2/3 * $110,100 = $73,400

1/3 * $159,000 = $53,000: 1/3 * $110,100 = $36,700

                            Claim-jumper     Makeover      Total

Sales                            $73,400       $36,700        $110,100  

Variable expense        $22,712        $4,813           $27,525  

Contribution margin    $50,688       $31,887         $82,575  

Fixed expense                      $82,575

Net operating income               0

Workings of Variable expenses  

Claim-jumper=  $32,800 / $106,000 * $73,400 = $22,712

Makeover = $6,950 / $53,000 * $36,700  = $4,813