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		67	%		79	%		?

Fixed expenses total $577,000 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 $48,000 a month, by how much would you expect the monthly net operating income to increase?

Answer 1

1.

		Flight Dynamic		Sure Shot		Total
		Amount	%	Amount	%
Selling Price	1	720,000.00	100	280,000.00	100	1,000,000
Variable Cost	2	237,600.00	33	58,800.00	21	296,400
Contribution Margin	3(2-1)	482,400.00	67	221,200.00	79	703,600
Fixed Cost	4					577,000
Profit /Income	5(3-4)					126,600

2.

The break-even point for the company as a whole-

BEP point	Fixed Expenses/overall CM Ratio
	577,000/70.36%
	820,068
CM Ratio	Contribution/Sales*100
	703,600/1,000,000*100
	70.36%

3.

The additional contribution margin from the additional sales has been computed as follows

$48,000*70.36% CM ratio

$                                           33,772.80

*There is no change in fixed cost