Question

CVP Analysis of Multiple Products

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		$16,000,000		$13,400,000		$29,400,000
Less: Variable costs		9,600,000		8,040,000		17,640,000
Contribution margin		$6,400,000		$5,360,000		$11,760,000
Less: Direct fixed costs		1,200,000		960,000		2,160,000
Segment margin		$5,200,000		$4,400,000		$9,600,000
Less: Common fixed costs						1,720,800
Operating income						$7,879,200

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 models	33,000 units
Deluxe models	6,600 units

Explanation:

	Sales mix (100,000 : 20,000) or (5 : 1)	Contribution margin per unit
Regular models	5	($6,400,000 / 100,000 units) = $64
Deluxe models	1	($5,360,000 / 20,000 units) = $268

Total pakage contribution = ($64 * 5) + ($268 * 1) = $588

Total fixed costs = $1,720,800 + $2,160,000 = $3,880,800

Break even pakage = Total fixed costs / Total pakage contribution = $3,880,800 / $588 = 6,600.

Break even for Regular models = 6,600 * 5 = 33,000 units

Break even for Deluxe models = 6,600 * 1 = 6,600 units

Answer 2:

Contribution margin ratio	0.40
Revenue	$9,702,000

Explanation:

Contribution margin ratio = $11,760,000 / $29,400,000 = 0.40.

Revenue =  Total fixed costs / Contribution margin ratio

= $3,880,800 / 0.40

= $9,702,000.