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 $106,000 $53,000 $159,000
Variable expenses 32,800 6,950 39,750
Contribution margin $73,200 $46,050 119,250
Fixed expenses 82,575
Net operating income $36,675
Requirement:
1: Compute the overall contribution margin (CM) ratio for the company.
2: Compute the overall break-even point for the company in sales dollars.
3: Verify the overall break-even point for the company by constructing a contribution format income statement showing the appropriate levels of sales for the two products.

Answer 1

Answer and Explanation:

1. The computation of overall contribution margin ratio is shown below:-

Overall contribution margin ratio = Total contribution ÷ Total sales

= $119,250 ÷ $159,000

= 75%

2. The computation of overall break-even point for the company in sales is shown below:-

Overall Break even = Fixed costs ÷ Contribution margin

= $82,575 ÷ 75%

= $110,100

3. The overall break-even point for the company by constructing a contribution format income statement showing the appropriate levels of sales for the two products is shown below:-

here, Sales at Break even in the ratio will be 2:1

Particulars Claimjumper Makeover Total

Sales $106,000 $53000 $159,000

($106,000 ÷ $159,000 × $110,100) ($53,000 ÷ $159,000 × $110,100)

Break even

sales $73,400 $36,700 $110,100

Particulars Claimjumper Makeover Total

Sales $73,400 $36,700 $110,100

Variable expense $22,712 $4,813 $27,525

Contribution margin $50,688 $31,887 $82,575

Fixed expense $82,575

Net operating income 0

Working Note

Variable expense for Claimjumper = Variable expenses ÷ Sales × Break even sales

= $32,800 ÷ $106,000 × $73,400

= $22,712

Variable expense for Makeover = Variable expenses ÷ Sales × Break even sales

= $6,950 ÷ $53,000 × $36,700

= $4,813