Question

Topper Sports, Inc., produces high-quality sports equipment. The company’s Racket Division manufactures three tennis rackets—the Standard, the Deluxe, and the Pro—that are widely used in amateur play. Selected information on the rackets is given below:

	Standard		Deluxe		Pro
Selling price per racket	$	55.00	$	86.00	$	125.00
Variable expenses per racket:
Production	$	33.00	$	43.00	$	45.00
Selling (5% of selling price)	$	2.75	$	4.30	$	6.25

All sales are made through the company’s own retail outlets. The Racket Division has the following fixed costs:

	Per Month
Fixed production costs	$	148,000
Advertising expense		128,000
Administrative salaries		78,000
Total	$	354,000

Sales, in units, over the past two months have been as follows:

	Standard	Deluxe	Pro	Total
April	2,000	1,000	5,000	8,000
May	8,000	1,000	3,000	12,000

Required:

1-a. Prepare contribution format income statements for April.

1-b. Prepare contribution format income statements for May.

3. Compute the Racket Division’s break-even point in dollar sales for April.

4. Whether the break-even point would be higher or lower with May’s sales mix than with April’s sales mix?

5. Assume that sales of the Standard racket increase by $22,800. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $22,800? Do not prepare income statements; use the incremental analysis approach in determining your answer.

• Req 1A
• Req 1B
• Req 3
• Req 4
• Req 5

Prepare contribution format income statements for April. (Round "Total percent" answers to 1 decimal place)

Topper Sports, Inc. Income Statement for April Standard Deluxe Pro Total Amount % Amount % Amount % Amount % Sales $110,000 100 % $86,000 100 % $625,000 100 % 100 % Variable expenses: Production (71,500) 55 % 47,300 % 256,250 % % Selling % % % % % % % % % % % % Total variable expenses (71,500) 55 % 47,300 0 % 256,250 0 % 232,050 0.0 % Contribution margin $38,500 45 % $38,700 100 % $368,750 100 % $232,050 100.0 % Fixed expenses: Production Advertising Administrative Total fixed expenses 0 Net operating income $232,050

Prepare contribution format income statements for May. (Round "Total percent" answers to 1 decimal place)

Answer 1

Answer :

1 (a)

Topper Sports, Inc.
Income Statement for April
	Standard	Deluxe	Pro	Total
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	$110000	100%	$86000	100%	$625000	100%	$821000	100%
Varibale expenses :
production	$66000	60%	$43000	50%	$225000	36%	$334000	40.7%
Selling	$5500	5%	$4300	5%	$31250	5%	$41050	5%
Total variable expenses	$71500	65%	$47300	55%	$256250	41%	$375050	45.7%
Contribution margin	$38500	35%	$38700	45%	$368750	59%	$445950	54.3%
Fixed Expenses :
production costs							$148000
Advertising expense							$128000
Administrative salaries							$78000
Total Fixed expenses							$354000
Net operating Income							$91950

1 (b)

Topper Sports, Inc.
Income Statement for May
	Standard	Deluxe	Pro	Total
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	$440000	100%	$86000	100%	$375000	100%	$901000	100%
Varibale expenses :
production	$264000	60%	$43000	50%	$135000	36%	$442000	49.1%
Selling	$22000	5%	$4300	5%	$18750	5%	$45050	5%
Total variable expenses	$286000	65%	$47300	55%	$153750	41%	$487050	54.1%
Contribution margin	$154000	35%	$38700	45%	$221250	59%	$413950	45.9%
Fixed Expenses :
production costs							$148000
Advertising expense							$128000
Administrative salaries							$78000
Total Fixed expenses							$354000
Net operating Income							$59950

(3) Racket Division’s break-even point in dollar sales for April.= Total fixed cost / CM ratio

= $ 354000/54.30%

= $ 651934 ( Approx)

(4)break-even point would be higher with May’s sales mix than with April’s sales mix since Contribution margin ratio is dipped down.

(5) If  sales of the Standard racket increase by $22,800.

Net operating Income incresed by = $ 22800*35%= $ 7980

If  sales of the pro racket increase by $22,800.

Net operating Income incresed by = $ 22800*59%= $ 13452