Question

Exercise 6-12 Multiproduct Break-Even Analysis [LO6-9]

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		60	%		80	%		?

Fixed expenses total $560,000 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 $57,000 a month, by how much would you expect the monthly net operating income to increase?

Answer 1

Solution 1:

Contribution format income statement
Particulars	Flight Dynamic	Sure Shot	Total
Sales	$680,000.00	$320,000.00	$1,000,000.00
Variable expenses	$272,000.00	$64,000.00	$336,000.00
Contribution margin	$408,000.00	$256,000.00	$664,000.00
Fixed expenses			$560,000.00
Net operating income			$104,000.00

Solution 2:

Overall CM ratio = $664,000 / $1,000,000 = 66.40%

company's break-even point in dollar sales = Fixed expenses / Overall CM ratio = $560,000 / 66.40% = $843,373

Solution 3:

If sales increase by $57,000 a month, increase in monthly operating income = Increase in sales * Overall CM ratio

= $57,000 * 66.40% = $37,848