Question

Olongapo Sports Corporation distributes two premium golf balls—the Flight Dynamic and the Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: Product Flight Dynamic Sure Shot Total Sales $670,000 $330,000 $1,000,000 CM ratio 66% 73% ? Fixed expenses total $585,000 per month.

Required: 1. Prepare a contribution format income statement for the company as a whole. Round your percentage answers to 2 decimal places (i.e. .1234 is considered as 12.34).

2. Compute the break-even point for the company based on the current sales mix. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

3. If sales increase by $47,000 a month, by how much would you expect net operating income to increase? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

Answer 1

1.

Olongapo Sports Corporation Contribution Margin Income Statement
	Flight Dynamic	Sure Shot	Totals
Sales	$ 670,000	$ 330,000	$ 1,000,000
Variable Cost	227,800	89,100	316,900
Contribution Margin	442,200	240,900	683,100
Fixed Expenses			585,000
Net Operating Income			98,100

2. Weighted average contribution margin ratio = 0.67 x 0.66 + 0.33 x 0.73 = 0.4422 + 0.2409 = 0.6831 or 68.31 %

Break-even sales revenue = Fixed Cost / Weighted Average Contribution Margin = $ 585,000 / 0.6831 = $ 856,390.

3. If sales increases by $ 47,000 per month, net operating income per month would increase by $ 47,000 x 68.31 % = $ 32,106.