Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow:
| Product | |||||||||
| Flight Dynamic | Sure Shot | Total | |||||||
| Sales | $ | 680,000 | $ | 320,000 | $ | 1,000,000 | |||
| CM ratio | 66 | % | 78 | % | ? | ||||
Fixed expenses total $596,500 per month.
Required:
1. Prepare a contribution format income statement for the company as a whole.
2. What is the company's break-even point in dollar sales based on the current sales mix?
3. If sales increase by $55,000 a month, by how much would you expect the monthly net operating income to increase?
| 1 | ||||||
| Flight Dynamic | Sure Shot | Total company | ||||
| Amount | % | Amount | % | Amount | % | |
| Sales | 680000 | 100.00% | 320000 | 100.00% | 1000000 | 100.00% |
| Variable expenses | 231200 | 34.00% | 70400 | 22.00% | 301600 | 30.16% |
| Contribution margin | 448800 | 66.00% | 249600 | 78.00% | 698400 | 69.84% |
| Fixed expenses | 596500 | |||||
| Net operating income | 101900 | |||||
| 2 | ||||||
| Break-even point in dollar sales | 854095 | =596500/69.84% | ||||
| 3 | ||||||
| Net operating income increase | 38412 | =55000*69.84% | ||||
| Note: Answers for 2 and 3 might vary slightly due to rounding off of Contribution margin ratio. | ||||||
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