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	$	65.00	$	100.00	$	145.00
Variable expenses per racket:
Production	$	39.00	$	42.00	$	58.00
Selling (5% of selling price)	$	3.25	$	5.00	$	7.25

All sales are made through the company’s own retail outlets. The Racket Division has the following fixed costs:

	Per Month
Fixed production costs	$	154,000
Advertising expense		134,000
Administrative salaries		84,000
Total	$	372,000

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 $23,400. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $23,400? Do not prepare income statements; use the incremental analysis approach in determining your answer.

Answer 1