Question

Exercise 5-10 Multiproduct Break-Even Analysis [LO5-9]

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below:

	Claimjumper				Makeover			Total
Sales	$	114,000			$	57,000		$	171,000
Variable expenses		42,040				9,260			51,300
Contribution margin	$	71,960			$	47,740			119,700
Fixed expenses									80,220
Net operating income								$	39,480

Required:

1. What is the overall contribution margin (CM) ratio for the company?

2. What is the company's overall break-even point in dollar sales?

3. Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products.

Answer 1

1) Overall Contribution margin Ratio = Total contribution margin/total sale
=119700/171000= 0.7 i.e. 70%
2) calculation of the overall break even point for the company in sales dollars
Break even sales dollars = total fixed expenses/contribution margin ratio
Break even sales dollars = 80220/70% = 114600
3) particulars			Claimjumper	makeover	total
Original sales			114000	57000	171000
percentage of total sale			67%	33%
sale at break even			76400	38200	114600
Contribution format income statement
particulars			Claimjumper	makeover	total
Sale			76400	38200	114600
less: Variable expenses ***			28174	6206	34380
Contribution margin			48226	31994	80220
less: fixed expenses					80220
Net operating income					0
therefore net income at break even level is ZERO
*** variable expenses = sale/original sale* variable exp = 76400/114000*42040
Make over's Variable expenses = 38200/57000*9260 = 6206