Question

Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow:

		Product
		Flight Dynamic			Sure Shot			Total
Sales	$	720,000		$	280,000		$	1,000,000
CM ratio		66	%		75	%		?

Fixed expenses total $577,500 per month.

Required:

1. Prepare a contribution format income statement for the company as a whole.

2. What is the company's break-even point in dollar sales based on the current sales mix?

3. If sales increase by $49,000 a month, by how much would you expect the monthly net operating income to increase?

Answer 1

1.)		Flight Dynamic	Sure Shot	Total
	Sales	720,000	280,000	1,000,000
	Less: Variable Cost	244,800	70,000	314,800
	Contribution Margin	475,200	210,000	685,200
	Less: Fixed Costs			577,500
	Net Income			107,700
	Working
		Flight Dynamic	Sure Shot	Total
	Sales	720,000	280,000	1,000,000
	Less: Variable Cost	=720000*(1-66%)	=280000*(1-75%)	314,800
	Contribution Margin	475,200	210,000	685,200
	Less: Fixed Costs			577,500
	Net Income			107,700
2.)		Flight Dynamic	Sure Shot
	Current sales Mix	72%	28%
		=720000/1000000	=280000/1000000
	Weighted average Contribution margin	68.52%	=(66%*72%)+(75%*28%)
	Company's break-even point in dollar sale	$ 813,631	=557500/68.52%
3.)	Increase in sales	$ 49,000
		Flight Dynamic	Sure Shot
	Sales Mix	72%	28%
	Sales In dollars increase	35,280	13,720
		=49000*72%	=49000*28%
	Contribution Margin ratio	66%	75%
	Flight Dynamic	23,285	=35280*66%
	Sure Shot	10,290	=13720*75%
	Expect monthly net operating income to increase	$ 33,575