Question

Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg expects to sell 100,000 regular models and 20,000 deluxe models. A segmented income statement for the two products is as follows:
Regular Model Deluxe Model Total
Sales $12,000,000 $10,720,000 $22,720,000
Less: Variable costs 7,200,000 6,432,000 13,632,000
Contribution margin $4,800,000 $4,288,000 $9,088,000
Less: Direct fixed costs 1,200,000 960,000 2,160,000
Segment margin $3,600,000 $3,328,000 $6,928,000
Less: Common fixed costs 1,702,400
Operating income $5,225,600
Required:
1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit.
Regular models units
Deluxe models units
2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal-based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar.
Contribution margin ratio
Revenue$

Answer 1

Answer:

1. Regular model 25,000 units

Deluxe model 4,477.61 units

2. $9,656,000

Explanation:

1. Computation of the number of regular models and deluxe models that must be sold to break even.

First step is to calculate the contribution margin

per unit for Regular model and Deluxe model using this formula

Contribution margin per unit = Contribution margin / Units sold

Let plug in the formula

Regular model Contribution margin per unit= $4,800,000 / 100,000

Regular model Contribution margin per unit=$48.00 per unit

Deluxe model Contribution margin per unit= $4,288,000 / 20,000

Deluxe model Contribution margin per unit= $214.40 per unit

Now let calculate the Break even point in units for Regular model and Deluxe model using this formula

Break even point in units = Direct fixed cost / Contribution margin per unit

Let plug in the formula

Regular model Break even point in units= $1,200,000 / $48

Regular model Break even point in units=25,000 units

Deluxe model Break even point in units= $960,000 / $214.40

Deluxe model Break even point in units =4,477.61 units

Therefore Break even point in units will be: Regular model 25,000 units

Deluxe model 4,477.61 units

2. Computation of the sales revenue that must be generated for the company to break even

First step is to calculate Contribution margin ratio using this formula

Contribution margin ratio = Contribution margin / Sales * 100

Let plug in the formula

Contribution margin ratio =$9,088,000 / $22,720,000 * 100

Contribution margin ratio =40%

Second step is to calculate the Total fixed expenses for the company using this formula

Total fixed expenses for the company = Total direct fixed costs + Common fixed costs

Let plug in the formula

Total fixed expenses for the company =$2,160,000 + 1,702,400

Total fixed expenses for the company =$3,862,400

Now let calculate the Break even point in dollar sales using this formula

Break even point in dollar sales = Total fixed cost / Contribution margin ratio

Let plug in the formula

Break even point in dollar sales=3,862,400 / 40%

Break even point in dollar sales=$9,656,000

Therefore Break even point in dollar sales will be $9,656,000