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	$	116,000			$	58,000		$	174,000
Variable expenses		35,800				7,700			43,500
Contribution margin	$	80,200			$	50,300			130,500
Fixed expenses									88,425
Net operating income								$	42,075

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

Solution:

Part 1 –

CM Ratio = Total Contribution Margin $130,500 / Total Sales 174,000 x 100

= 75%

Part 2 –

Company’s overall break even point in dollar sales = Total Fixed Costs $88,425 / CM Ratio 75%

= $117,900

Part 3 –

Contribution format income statement at the company's break-even point
	Claim Jumper	Makeover	Total
Sales Revenue ($117,900*Sales Mix 2/3 & 117,900*1/3 Sales Mix)	$78,600	$39,300	$117,900
Less: Variable Costs (Variable Expense Ratio as per below calculation * Sales)	$24,258	$5,217	$29,475
Contribution Margin	$54,342	$34,083	$88,425
Less: Fixed Expenses			$88,425
Net Operating Income			$0

Note 1 -

Calculation of Sales Mix	Claim Jumper	Makeover	Total
Total Sales	$116,000	$58,000	$174,000
Sales Mix Ratio	2/3	1/3	1
Calculation of Variable Expense Ratio:
Total Sales	$116,000	$58,000	$174,000
Total Variable Expenses	35800	7700	43500
Variable Expense Ratio to Sales (Variable Expense / Sales)	30.86207%	13.27586%