Question

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	$	710,000		$	290,000		$	1,000,000
CM ratio		68	%		76	%		?

Fixed expenses total $571,500 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 $45,000 a month, by how much would you expect the monthly net operating income to increase?

	Flight Dynamic			Sure Shot			Total Company
	Amount	%		Amount	%		Amount	%
Sales			%			%	0		%
Variable expenses			%			%	0		%
Contribution margin	$0	0.00	%	$0	0.00	%	0	0.00	%
Fixed expenses
Net operating income							$0

Answer 1

1.

	Flight Dynamic		Sure Shot		Total Company
	Amount	%	Amount	%	Amount	%
Sales	$710,000	100%	$290,000	100%	$1,000,000	100%
(-) Variable expenses	$227,200	32%	$69,600	24%	$296,800	29.68%
Contribution margin	$482,800	68%	$220,400	76%	$703,200	70.32%
(-) Fixed Expenses					$571,500
Net Operating Income					$131,700

2.

Breakeven point = Fixed Expenses / Contribution margin ratio

= $571,500 / 70.32%

= $812,713

3.

Additional contribution margin = Additional Sales * 70.32%

= $45,000 * 70.32%

= $31,644

Additional contribution margin increases the net operating income by $31,644 because there is no change in fixed expenses.