Question

Gogan Company manufactures and sells two products: Basic and Deluxe. Monthly sales, CM ratios, and the CM per unit for the two products are shown below:

	Product
	Basic			Deluxe			Total
Sales	$	600,000		$	400,000		$	1,000,000
Contribution margin ratio		60	%		35	%		?
Contribution margin per unit	$	9.00		$	11.50			?

The company’s fixed expenses total $400,000 per month.

Required: 1. Prepare a contribution format income statement for the company as a whole. 1.000.000 Basic Deluxe Total Amount Amount % Amount Sales S600,000 60 $400,000 40 Variable expenses 240,000 24 260,000 52 500,000 Contribution margin $360,000 38 S140,000 (12) S 500,000 Fixed expenses 400,000 Operating income S 100,000 Red at indicates no response was expected in a eller formulated calculation is correct; ne points deducted % 100 100 % 2. Compute the overall break-even point in dollars for the company based on the current sales mix. Break-even point in total dollar $ 800.000 3. Compute the overall break-even point in units for the company based on the current sales mix. (Do not round intermediate calculations. Round your final answer to nearest whole number.) Break-even in 41.754 units

Answer 1

Part 1- The percentages have to be calculated vertically and not horizontally. Contribution Margin of 60 and 35 was provided. Sales forms a 100% i.e it comprises of variable expense and margin. Remaining percentage contributes to Variable expense.

Basic Amount Sales Variable Expense Contribution Margin Fixed Expense Operating Income 600000 240000 360000 Diluted Amount % 100 400000 40 260000 60 140000 Total Amount % 100 1000000 500000 35 500000 400000 100000 65 00

Part 2,3, 4b are correct.

For part 4a, the new operating income will be 125000. Hence the operating income has increases by 25000. The correct answer is 25000$

Total Amount 100 Sales Variable Expense Contribution Margin Fixed Expense Operating Income 1050000 525000 525000 400000 125000