Question

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	$	104,000			$	52,000		$	156,000
Variable expenses		25,960				5,240			31,200
Contribution margin	$	78,040			$	46,760			124,800
Fixed expenses									91,680
Net operating income								$	33,120

Required:

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

In this question, the variable expense is 20% of the sales which means the contribution margin ratio is 80%. So the break-even point is =

Fixed expenses/contribution margin ratio

= $91680/80% = $114600

Break-even point = $114600

Contribution Income statement

Sales $114600

Variable expenses (20% of sales) ($22920)

Contribution Margin $91680

Fixed expenses ($91680)

Profit 0

At the $114600 level of sales, we can achieve the break-even point for the two products.