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	$	98,000			$	49,000		$	147,000
Variable expenses		24,520				4,880			29,400
Contribution margin	$	73,480			$	44,120			117,600
Fixed expenses									91,680
Net operating income								$	25,920

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	Contribution Margin Ratio	=	Contribution Margin/ Sales
	Contribution Margin		$117,600
	Sales		$147,000
	Contribution Margin Ratio	=	$117600/$147000
	Contribution Margin Ratio		80.00%
2	Break Even Point
	At Break Even, the contribution margin recovers the fixed cost of the company.
	At Break even there is no profit no loss
	Sales- Variable Cost	=	Fixed Cost
	Variable Cost ratio =	Variable Cost/ Sales
		29400/147000
		20.00%
	Variable cost =	20% sales
	Sales- Variable Cost	=	Fixed Cost
	Sales-.2 sales =		$91,680
	.8 Sales	=	$91,680
	Sales at Break Even	=	91680/.8
		=	$114,600
	Break Even point	=	$114,600
3	Variable Cost Ratio
		Claimjumper		Makeover
	Sales	$98,000		$49,000
	Variable Cost	$24,520		$4,880
	Variable cost ratio	25.02%		9.96%
		(24520/98000)		(4880/49000)
	Total Sales	$147,000
	Sales Ratio for Claimjumper	98000/147000		66.67%
	Sales Ratio for makeover	49000/147000		33.33%
	Sales at Break Even
	Claim jumper	Break even sales*Sales Ratio
		$114600*66.67%
		$76,400.00
	Makeover	$114600*33.33%
		$38,200.00
	Contribution Margin Income Statement at Break Even
		Claimjumper		Makeover		Total
	Sales	$76,400.00		$38,200.00		$114,600.00
	Variable Costs	$19,115.59		$3,804.41		$22,920.00
		($76400*25.02%)		(38200*-9.96%)
	Contribution Margin					$91,680.00
	Fixed Costs					$91,680.00
	Net Operating Income					$0.00