Question

Olongapo Sports Corporation distributes two premium golf balls-Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: Product Flight Dynamic Sure Shot 740.000 $ 250.000 68% 72 Total 1.000.000 Sales $ $ CH ratio Fixed expenses total $593,500 per month Required: 1. Prepare a contribution format income statement for the company as a whole. 2. What is the company's break-even point in dollar sales based on the current sales mix? 3. If sales increase by $43,000 a month, by how much would you expect the monthly net operating income to increase? Complete this question by entering your answers in the tabs below. Alt + A)

Answer 1

1. Contribution Format Income Statement for the company as a whole.
Particulars	Flight Dynamic		Sure Shot		Total Company
	Amount	%	Amount	%	Amount	%
Sales	$740,000	100.00%	$260,000	100.00%	$1,000,000	100.00%
Variable Expenses	$236,800	32.00%	$70,200	27.00%	$307,000	30.70%
Contribution Margin	$503,200	68.00%	$189,800	73.00%	$693,000	69.30%
Fixed Expenses					$593,500
Net Operating Income					$99,500
The Net Operating Income of the company is $99,500.
2. Calculation of Company's Break Even Point in Dollar Sales.
Break Even Point (Whole Company) = Fixed Expenses / Contribution Margin(for company whole)*
Break Even Point (Whole Company) = $ 593,500 / 69.30%
Break Even Point (Whole Company) = $ 856,421.36
Therefore, Company's Break Even Point in Dollar Sales based on the current sales mix is $ 856,421.36
*Contribution Margin based on current sales mix for the company as a whole is taken from Point #1.
3. Calculation of Increase in Monthly Net Operating Income on increase of $ 43,000 in sales.
Increase in Contribution on Additional Sales of $ 43,000.
= Additional Sales * Contribution Margin
= $43,000 * 69.30%
= $29,799
Assuming that there is no change in the fixed expenses, the increase in monthly net operating income would be $29,799.