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 $ 70.00 $ 106.00 $ 160.00 Variable expenses per racket: Production $ 42.00 $ 53.00 $ 64.00 Selling (5% of selling price) $ 3.50 $ 5.30 $ 8.00

All sales are made through the company’s own retail outlets. The Racket Division has the following fixed costs: Per Month Fixed production costs $ 158,000 Advertising expense 138,000 Administrative salaries 88,000 Total $ 384,000

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 $23,800. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $23,800? Do not prepare income statements; use the incremental analysis approach in determining your answer.

Answer 1

Solution: