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	$	110,000			$	55,000		$	165,000
Variable expenses		40,600				8,900			49,500
Contribution margin	$	69,400			$	46,100			115,500
Fixed expenses									81,480
Net operating income								$	34,020

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.

Overall contribution margin (CM) ratio for the company = Total contribution margin/Total sales

= 115,500/165,000

= 70%

2.

Company's overall break-even point in dollar sales = Fixed expenses/Overall contribution margin (CM) ratio for the company

= 81,480/70%

= $116,400

3.

Sales mix = Claimjumper : Makeover

= 2:1

Break even sales of Claimjumper = 116,400 x 2/3

= $77,600

Break even sales of Makeover = 116,400 x 1/3

= $38,800

Contribution margin ratio of Claimjumper = Contribution margin/Sales

= 69,400/110,000

= 63.0909090909%

Contribution margin ratio of Makeover = Contribution margin/Sales

= 46,100/55,000

= 83.8181818181%

	Claimjumper				Makeover			Total
Sales	$	77,600			$	38,800		$	116,400
Variable expenses		28,641				6,279			34,920
Contribution margin	$	48,959			$	32,521			81,480
Fixed expenses									81,480
Net operating income								$	0