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	$	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.

Answer 1

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