Question

Rastacan Enterprises distributes two products: Model X300 and Model Z900. Monthly sales and the contribution margin ratios for the two products follow:                                                         Product Model X300        Model Z900       Total                              Sales       $700,000        $300,000        $1,000,000   Contribution margin ratio       60%         70%           ?                           The company's fixed expenses total $598,500 per month.                                                      Required:                           1. Prepare a contribution-format income statement for the company as a whole.                                                                         2. Compute the break-even point for the company based on the current sales mix.                                                                                                        3. If sales increase by $50,000 per month, by how much would you expect operating income to increase? What are your assumptions?

Answer 1

Ans 1
Prepare a contribution-format income statement for the company as a whole
			Model X300	Model Z900	Total
i	Sales		$      700,000	$   300,000	$      1,000,000
ii	Contibution margin ratio	60%	70%
iii	Contribution margin in $	$      420,000	$   210,000	$         630,000
iv	Less: Fixedcost				$       (598,500)
v=iii-iv	Net income				$           31,500
Ans 2
break-even point
	Contribution margin mix = 630000/1000000
			63.00%
	Breakeven point = Fixed cost / Contribution margin mix
			598000/63%
			$      950,000
Ans 3
	If the sales increases by 50,000
	Operating income increase=	$        31,500
	50000*63%