Question

Exercise 5-10 (Algo) Multiproduct Break-Even Analysis [LO5-9]

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	$	102,000			$	51,000		$	153,000
Variable expenses		25,480				5,120			30,600
Contribution margin	$	76,520			$	45,880			122,400
Fixed expenses									93,600
Net operating income								$	28,800

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

A. Overall cm ratio = Contribution margin/Sales

= 122,400/153,000

= 80%

.

B. Overall break-even point = Fixed cost/overall cm ratio

= 93,600/80%

= 117,000

.

C.

	Claim jumper	Makeover	Total
Sales	(102,000/153,000)*117,000 = 78,000	(51,000/153,000)*117,000 = 39,000	117,000
Variable cost	(25,480/105,000)*78,000 = 19,484	(5,120/51,000)*39,000 = 3,915	22,843
Contribution margin	58,516	35,085	93,601
Fixed expenses			93,600
			0

Note :- I have rounded some numbers. Comment if you face any issues.