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 $96,000 $48,000    $144,000

Variable Expenses    $24,040 $4,760    $28,800

Contribution margin $71,960    $43,240 $115,200

Fixed Expenses    $90,000

Net operating income $25,200

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 as the company's break-even point that shows the appropriate level of sales for the the two products.

Answer 1

1.

The overall contribution margin(CM) ratio for the company : Total contribution margin / Total sales

= 115200 / 144000 = 80%

2.

The company's overall break-even point in dollar sales: Total fixed expense / Overall CM ratio

= 90000 / .8 = $112500

3.

To construct the income statement we must first determine the sales mix

Particulars	Claimjumper	makeover	Total
Original dollar sales	96000	48000	144000
% of total	67%	33%	100%
Sales at breakeven	75000	37500	112500
Particulars	Claimjumper	makeover	Total
Sales	75000	37500	112500
LESS: variable expense*	18781.25	3718.75	22500
Contrinbution margin	56218.75	33781.25	90000
Less: fixed expenses			90000
Net operating income			0
* claimjumper variable expense = (24040/96000)*75000 = 18781.25
*makeover variable expense = (4760/48000)*37500 = 3718.75