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	$	110,000			$	55,000		$	165,000
Variable expenses		40,600				8,900			49,500
Contribution margin	$	69,400			$	46,100			115,500
Fixed expenses									79,800
Net operating income								$	35,700

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

Answers:

1.)

Overall CM ratio = Total Contribution Margin ÷ Total sales

= $115,500 ÷ $165,000

= .7 or 70%

.

2.)

Overall Break-even = Total fixed expenses ÷ Overall CM ratio

= $79,800 × 70%

= $114,000

.

3.)

	Clain jumper	Makeover	Total
Original Dollar Sales	$110,000	$55,000	$165,000
Percent of total	66.67%	33.33%	100%
Sales at break-even	$76,003.80	$37,996.20	$114,000

Workings:

Sales percentage of total:

Claim jumper:

= $110,000 ÷ $165,000

= 66.67%

Makeover:

=$55,000 ÷ $165,000

= 33.33%

Sales at break-even:

Claim jumper:

= $114,000 × 66.67%

= $76,003.80

Makeover:

=$114,000 × 33.33%

= $37,996.20