Question

Muscle Beach, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here:

	MegaMuscle			PowerGym			ProForce
Selling price per unit	$	136		$	205		$	292
Contribution margin per unit		43			76			59
Monthly sales volume—units		2,910			2,040			990
Fixed expenses per month			Total of $329,300

a. Calculate the contribution margin ratio of each product. (Round your answers to 1 decimal place.)

	Mega muscle	power gym	ProForce
Contribution margin ratio	%	%	%

b. Calculate the firm's overall contribution margin ratio. (Round your answer to 1 decimal place.)

Overall CM ratio

%

c. Calculate the firm's monthly break-even point in sales dollars. (Round your intermediate calculations to 1 decimal place.)

Break-even point

d. Calculate the firm's monthly operating income.

e-1. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $280,530 per month. Assuming that this change would not affect the other models, what would be the effect on net operating income.

net operating income will

e-2. Would you recommend the elimination of the ProForce model?

	Yes
	No

f-1. Assume the same facts as in requirement e-1. Assume also that the sales volume for the PowerGym model will increase by 497 units per month if the ProForce model is eliminated. What would be the effect on operating income.

net operating income will

f-2. Would you recommend eliminating the ProForce model?

	Yes
	No

Answer 1

Answer (a) Calculation of Contribution margin ratio
		Mega Muscle	Power gym	Pro force
(A)	Sales Price	$          136.00	$          205.00	$          292.00
(B)	Contribution Margin	$            43.00	$            76.00	$            59.00
(B/A)	Contribution Margin Ratio	31.62%	37.07%	20.21%

Answer (b)	Overall Contribution margin ratio
		Mega Muscle	Power gym	Pro force	Total
(A)	Sales Price	$          136.00	$          205.00	$          292.00	$              633.00
(B)	Contribution Margin	$            43.00	$            76.00	$            59.00	$              178.00
(B/A)	Contribution Margin Ratio	31.62%	37.07%	20.21%	28.12%

Overall Contribution margin ratio

28.12%

Answer (c )	Breakeven point in sales dollars
	Breakeven	Fixed Cost/Contribution margin ratio.
	Breakeven	(329300/28.12%)
	Breakeven	$ 1171052.632

Answer (d)	Operating Income
		Mega Muscle	Power gym	Pro force	Total
	sales Revenue	$ 395,760.00	$ 418,200.00	$ 289,080.00	$ 1,103,040.00
	Variable Cost	$ 270,630.00	$ 263,160.00	$ 230,670.00	$      764,460.00
	Contribution Margin	$ 125,130.00	$ 155,040.00	$    58,410.00	$      338,580.00
	Fixed Cost				$      329,300.00
	Net Operating Income				$          9,280.00

Variable cost is Selling price per unit minus contribution per unit multiplied by units sold.

Students are advised to consider only the total column. Other columns are just for explanation.

Answer (e1)	Operating Income after eliminating pro force
		Mega Muscle	Power gym	Total
	sales Revenue	$ 395,760.00	$ 418,200.00	$ 813,960.00
	Variable Cost	$ 270,630.00	$ 263,160.00	$ 533,790.00
	Contribution Margin	$ 125,130.00	$ 155,040.00	$ 280,170.00
	Fixed Cost			$ 280,530.00
	Net Operating Income			$        (360.00)

Answer (e2)	No.
	This is not recommended as it not only decreases operating income but also gives negative income.

Answer (F1)	Operating Income after eliminating pro force (sale of power gym increased)
		Mega Muscle	Power gym	Total
	sales Revenue	$ 395,760.00	$ 520,085.00	$ 915,845.00
	Variable Cost	$ 270,630.00	$ 327,273.00	$ 597,903.00
	Contribution Margin	$ 125,130.00	$ 192,812.00	$ 317,942.00
	Fixed Cost			$ 280,530.00
	Net Operating Income			$    37,412.00

Answer (F2)	Yes
	This Increases the operating income so it is recommended.