Question

CVP Analysis of Multiple Products

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		$14,400,000		$12,060,000		$26,460,000
Less: Variable costs		8,640,000		7,236,000		15,876,000
Contribution margin		$5,760,000		$4,824,000		$10,584,000
Less: Direct fixed costs		1,200,000		960,000		2,160,000
Segment margin		$4,560,000		$3,864,000		$8,424,000
Less: Common fixed costs						1,720,800
Operating income						$6,703,200

1. Compute the number of regular models and deluxe models that must be sold to break even. Round your 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

Question – 1:

Regular Model:

Units = 90000

Revenue = 14,400,000

Variable Cost = 8,640,000

Hence, Revenue per unit = 14,400,000/90000 = $160

Variable cost per unit = 8640000/90000 = $96

Fixed cost = $1,200,000

Let the breakeven quantity = x

At breakeven profit = 0, means total revenue = total cost

Total revenue = total fixed cost + total variable cost

Total revenue = unit*revenue = 160*x

Total Variable cost = unit*variable cost per unit = 96*x

So,

160*x = 96*x + 1200000

64*x = 1200000

x = 18750.

Breakeven quantity = 18750

Deluxe Model:

Units = 18,000

Revenue = 12,060,000

Variable Cost = 7,236,000

Hence, Revenue per unit = 12,060,000/18000 = $670

Variable cost per unit = 7236000/18000 = $402

Fixed cost = $960,000

Let the breakeven quantity = x

At breakeven profit = 0, means total revenue = total cost

Total revenue = total fixed cost + total variable cost

Total revenue = unit*revenue = 670*x

Total Variable cost = unit*variable cost per unit = 402*x

So,

670*x = 960000 + 402*x

268*x = 960000

x = 9582.09

So, Breakeven quantity = 9582 units (rounded to nearest whole number)

Answer:

Regular Models: 18750

Deluxe Models: 9582

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Question – 2:

Contribution Margin Ratio: 40%

(Contribution Margin/Sales)*100% = (10,584,000/ 26,460,000)*100%

= 0.4*100 = 40%

We know that,

Breakeven revenue = Fixed cost/Contribution Margin Ratio

= (2160000 + 1720800)/0.4

= 3880800/0.4

= 9702000

Contribution Margin Ratio = 0.4 (40%)

Breakeven Revenue = $9,702,000

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