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 $ 116,000 $ 58,000 $ 174,000 Variable expenses 35,800 7,700 43,500 Contribution margin $ 80,200 $ 50,300 130,500 Fixed expenses 83,250 Net operating income $ 47,250 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:

Instructions are below.

Explanation:

Giving the following information:

Claimjumper Makeover

Total Sales:

Claimjumper= $116,000

Makeover= $58,000

Total= $174,000

Variable expenses:

Claimjumper= $35,800

Makeover= $7,700

Total= $43,500

Contribution margin:

Claimjumper= $80,200

Makeover= $50,300

Total= $130,500

Fixed expenses 83,250

Sales proportion:

Claimjumper= 116,000/174,000= 0.67

Makeover= 58,000/174,000= 0.33

Variable cost proportion:

Claimjumper= 35,800/43,500= 0.82

Makeover= 7,700/43,500= 0.18

First, we need to calculate the contribution margin ratio for the company:

Weighted average contribution margin ratio= (weighted average selling price - weighted average unitary variable cost)/ weighted average selling price

Weighted average contribution margin ratio= 130,500/174,000

Weighted average contribution margin ratio= 0.75

Now, we can calculate the break-even point in dollars:

Break-even point (dollars)= fixed costs/ Weighted average contribution margin ratio

Break-even point (dollars)= 83,250/0.75

Break-even point (dollars)= $111,000

Finally, we structure the income statement:

Sales= 111,000

Total variable costs= (111,000*0.25)= (27,750)

Income statement:

Sales:

Claimjumper= 111,000*0.67= 74,370

Makeover= 111,000*0.33= 36,630

Variable costs:

Claimjumper= 27,750*0.82= (22,755)

Makeover= 27,750*0.18= (4,995)

Contribution margin= 83,250

Fixed costs= 83,250

Net operating income= 0