Question

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									92,880
Net operating income								$	24,720

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

Requirement 1

Contribution margin ratio

80%

Requirement 2

Overall Break-even point

$ 116,100.00

Requirement 3

Contribution income statement
	Claimjumper	Makeover	Total
Sales	$          77,400	$              38,700	$        116,100
Variable expenses	$          19,366	$                 3,854	$           23,220
Contribution margin	$          58,034	$              34,846	$           92,880
Fixed cost			$           92,880
Net operating income (loss)			$                    -

Working

A	Sales	$ 147,000.00
B	Variable expenses	$    29,400.00
C=A-B	Contribution margin	$ 117,600.00
D=C/A	Contribution margin ratio	80%
E	Fixed cost	$    92,880.00
F=E/D	Overall Break-even point	$ 116,100.00

.

Contribution income statement
	Claimjumper	Makeover
Sales	=98000/147000*116100	=49000/147000*116100
Variable expenses	=24520/98000*77400	=4880/49000*38700