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 $ 108,000 $ 54,000 $ 162,000 Variable expenses 39,880 8,720 48,600 Contribution margin $ 68,120 $ 45,280 113,400 Fixed expenses 82,530 Net operating income $ 30,870 Required: 1. What is the overall contribution margin (CM) ratio for the company? 2. What is the company's overall break-even point in dollar sales? 3. Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products.

Answer 1

Answer:

See explanations below

Explanation:

1. Overall contribution margin ratio of the company

= (Total contribution margin / Total sales ) × 100

= ( $113,400 / $162,000 ) × 100

= 70%

2 Company's overall break even point in dollar sales.

= Fixed expenses / Contribution margin ratio

= $82,530 / 70%

= $117,900

3. Contribution format income statement

Claim jumper

Sales $108,000/$162,000 = $0.67 × 100

= 67% × $117,900

= $78,993

Makeover

Sales $54,000/$162,000 = $0.33 × 100

= 33% × $117,900

= $38,907

Claim jumper

Variable expenses

= ($68,120 / $108,000) × $39,880

= $25,154

Makeover

Variable expenses

= ($45,280 / $54,000) × $8,720

= $7,312

• Variable expenses at the point of break even sales = (Break even sales / Original sales ) × Variable expense