Question

Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg expects to sell 90,000 regular models and 18,000 deluxe models. A segmented income statement for the two products is as follows:

		Regular Model		Deluxe Model		Total
Sales		$13,500,000		$12,150,000		$25,650,000
Less: Variable costs		9,000,000		7,290,000		16,290,000
Contribution margin		$4,500,000		$4,860,000		$9,360,000
Less: Direct fixed costs		1,200,000		960,000		2,160,000
Segment margin		$3,300,000		$3,900,000		$7,200,000
Less: Common fixed costs						1,280,000
Operating income						$5,920,000

Required:

1. Compute the number of regular models and deluxe models that must be sold to break even. Round all intermediate calculations to four decimal places, and round your final answers to the nearest whole unit.

Regular models	units
Deluxe models	units

2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal-based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar.

Contribution margin ratio
Revenue	$

Answer 1

1)

	Regular Model	Deluxe Model
Contribution (A)	4,500,000	4,860,000
Units (B)	90,000	18,000
Contribution per unit (A/B)	50	270
Direct fixed costs (C)	1,200,000	960,000
Contribution per unit (D)	50	270
Break even units (C/D)	24,000	3,556

2)

At break even, profit(operating income) = 0

Sales - Variable costs - Direct fixed costs - Common fixed costs = 0

Sales - 16290000 - 2160000 - 1280000 = 0

Sales = 16290000+2160000+1280000 = 19730000

Therefore, break even sales = 19,730,000

Contribution = 19730000 - 16290000 = 3440000

Contribution margin ratio = Sales/Contribution = 3440000/19730000 = 17.4354%