Question

CVP Analysis of Multiple Products

Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg expects to sell 100,000 regular models and 20,000 deluxe models. A segmented income statement for the two products is as follows:

		Regular Model		Deluxe Model		Total
Sales		$16,000,000		$13,400,000		$29,400,000
Less: Variable costs		9,600,000		8,040,000		17,640,000
Contribution margin		$6,400,000		$5,360,000		$11,760,000
Less: Direct fixed costs		1,200,000		960,000		2,160,000
Segment margin		$5,200,000		$4,400,000		$9,600,000
Less: Common fixed costs						1,603,200
Operating income						$7,996,800

Required:

1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit.

Regular models	units
Deluxe models	units

2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal-based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar.

Contribution margin ratio
Revenue	$

Answer 1

Ans. 1	To calculate break even in units, we need to calculate the contribution margin
	per unit.
	Contribution margin per unit =   Contribution margin / Units sold
	Regular model	$6,400,000 / 100,000	$64.00	per unit
	Deluxe model	$5,360,000 / 20,000	$268.00	per unit
	Break even point in units = Direct fixed cost / Contribution margin per unit
	Regular model	$1,200,000 / $64	18750	units
	Deluxe model	$960,000 / $268	3582	units
Ans. 2	Contribution margin ratio =   Contribution margin / Sales * 100
		$11,760,000 / $29,400,000 * 100
		40.0000%
	Total fixed expenses for the company =   Total direct fixed costs + Common fixed costs
		$2,160,000 + $1,603,200
		$3,763,200
	Break even point in dollar sales = Total fixed cost / Contribution margin ratio
		$3,763,200 / 40%
		$9,408,000