Question

Blue Chance Co. sells computers and video game systems. The business is divided into two divisions along product lines. Variable costing income statements for the current year are presented below:

  Computers            VG Systems              Total    

Sales $700,000               $300,000            $1,000,000

Variable costs     420,000                 210,000                630,000

Contribution margin          $280,000               $ 90,000                 370,000

Fixed costs        296,000

Net income   $   74,000

Instructions

(a)   Determine the sales mix and contribution margin ratio for each division.

(b)   Calculate the company’s weighted-average contribution margin ratio.

(c)   Calculate the company’s break-even point in dollars.

(d)   Determine the sales level, in dollars, for each division at the break-even point.

Answer 1

(a)

Income Statement
Particulars	Computers	VG System	Total
Sales	700000	300000	1000000
Variable Cost	420000	210000	630000
Contribution	280000	90000	370000
Fixed Cost			296000
Profit			74000
Contribution margin ratio	40	30	37
(Contribution/Sales)

Sales mix is 7:3 of computers and VG mix And contribution margin is 40% and 30% respectively.

(b) Calculation of Weighted average Contribution margin ratio = Total contribution / Total sales * 100

= 370000/1000000*100

= 37%

(c) Overall Break even point sales = Fixed cost / Weighted average contribution margin ratio

= 296000/37%

= $800000

(d) Sales level of each devision at Break Even Point

Computers = 800000*7/10 = $560000

VG System = 800000*3/10= $240000