Question

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

		Claimjumper	Makeover	Total
	Sales..........................	$30,000	$70,000	$100,000
	Variable expenses*.......	20,000	50,000	70,000
	Contribution margin......	$ 10,000	$20,000	30,000
	Fixed expenses............			24,000
	Net operating income...			$ 6,000

1?. The overall contribution margin ratio can be computed as follows:

2?. The overall break-even point in dollar sales can be computed as follows:

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.

To construct the required income statement, we must first determine the relative sales mix for the two products:

		Claimjumper	Makeover	Total
	Original dollar sales......	$30,000	$70,000	$100,000
	Percent of total............	30%	70%	100%
	Sales at break-even......	$24,000	$56,000	$80,000
		Claimjumper	Makeover	Total
	Sales..........................	$24,000	$56,000	$80,000
	Variable expenses*.......	16,000	40,000	56,000
	Contribution margin......	$ 8,000	$16,000	24,000
	Fixed expenses............			24,000
	Net operating income...			$       0

*Claimjumper variable expenses: ($24,000/$30,000) × $20,000 = $16,00

Makeover variable expenses: ($56,000/$70,000) × $50,000 = $40,000

Answer 1

Particulars	Claimjumper	Makeover	Total
Sales	30,000	70,000	100,000
Variable expenses	20,000	50,000	70,000
Contribution margin	10,000	20,000	30,000
Fixed expenses			24,000
Net operating income			6,000
overall contribution margin ratio=		Contribution Margin/Total sales
		=30,000/100,000
		30%
overall break-even point=		Fixed Cost/Contribution margin
		=24,000/30%
		80,000
Particulars	Claimjumper	Makeover	Total
Sales	30,000	70,000	100,000
Percent of total	30%	70%	100%
Sales at break even	24,000	56,000	80,000
Variable expense	16,000	40,000	56,000
Fixed expense			24,000
Net operating income			-