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	$	100,000			$	50,000		$	150,000
Variable expenses		37,000				8,000			45,000
Contribution margin	$	63,000			$	42,000			105,000
Fixed expenses									77,910
Net operating income								$	27,090

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

1)

The overall contribution margin (CM) ratio for the company: -

= (Total contribution margin/Total sales) *100

= ($105,000/$150,000) *100

=70%

2)

The overall break-even point for the company in dollar sales: -

=Total Fixed expenses/ overall contribution margin (CM) ratio

=$77,910/70%

= $111,300

3)

Income statement	Claimjumper	Makeover	Total
Sales	74,200 (111,300*100,000/150,000)	37,100 (111,300*50,000/150,000)	111,300
Variable Expanse(30% of sales)	22,260	11,130	33,390
Contribution Margin(70% of sales)	51,940	25,970	77,910
Fixed Expanse			77,910
Net operating income			0