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	$	102,000			$	51,000		$	153,000
Variable expenses		37,720				8,180			45,900
Contribution margin	$	64,280			$	42,820			107,100
Fixed expenses									82,530
Net operating income								$	24,570

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 ratio = overall contribution / sales

=>107,100 / 153,000

=>0.70.

2.overall break even point in dollar sales = fixed costs / contribution margin ratio

=>$82,530 / 0.70

=>$117,900.

3.contribution format income statement at company's break even point;

	Claimjumper	Makeover	Total
Sales (117,900*102,000/153,000) (117,900*51,000/153,000)	78,600	39,300	117,900
less; variable expenses (37,720*78,600/102,000) (8,180*39,000/51,000)`	29,067	6,303	35,370
contribution margin	49,533	32,997	82,530
less; fixed expenses			(82,530)
net operating income			nil