Question

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a...

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 \$ 118,000 \$ 59,000 \$ 177,000 Variable expenses 36,400 7,850 44,250 Contribution margin \$ 81,600 \$ 51,150 132,750 Fixed expenses 83,700 Net operating income \$ 49,050

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.

Lucido products,

Sales mix :

Claim jumper = 118,000/177,000 = 66.67%

Makeover = 59,000/177,000 = 33.33%

1. Overall Contribution margin ratio :

= (81,600/118,000 × 66.67%) + (51,150/59,000 × 33.33%)

= (69.15% × 66.67%) +( 86.70% × 33.33%)

= 46% + 29% = 75% (approximately)

2. Overall break even point = Fixed cost / Overall Contribution margin ratio

= \$ 83,700 / 75%

= \$ 111,600

3. Contribution income statement (\$)

 Claim jumper Makeover Total Sales 111,600×66.66% = 74,393 111,600×33.33% = 37,207 111,600 Less: Variable cost @(1-contribution rate) 74,393×(1-69.15%) = (22,950) 37,207×(1-86.7%) = (4,949) (27,899) Contribution margin @ contribution rate 74,393×69.15% = 51,443 37,207×86.7% = 32,258 83,701 Less: Fixed cost (83,700) Net operating income 1