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: Total $165,000 41,250 123,750 Claimjumper Makeover Sales $110,000 $55,000 Variable 34,000 7,250 expenses Contribution $ 76,000 $47,750 margin Fixed expenses Net operating income 85,950 $ 37,800 Required: 1. What is the overall contribution margin (CM) ratio for the company? 2. What is the company's overall break-even point in dollar sales? 3. Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products.

Answer 1

Answer to Requirement 1.

Overall CM Ratio = Total Contribution Margin / Total Sales * 100
Overall CM Ratio = $123,750 / $165,000 * 100
Overall CM Ratio = 75%

Answer to Requirement 2.

Overall Break Even Point (Dollar Sales) = Total Fixed Expenses / Overall CM Ratio
Overall Break Even Point (Dollar Sales) = $85,950 / 0.75
Overall Break Even Point (Dollar Sales) = $114,600

Answer to Requirement 3.

Claimjumper:
Proportion of Claimjumper Sales in Total Sales = $110,000 / $165,000
Proportion of Claimjumper Sales in Total Sales = 66.6667%

Variable Expense Ratio = $34,000 / $110,000 * 100
Variable Expense Ratio = 30.91%

Claimjumper Sales in Break Even Sales = $114,600 * 66.6667%
Claimjumper Sales in Break Even Sales = $76,400

Makeover:
Proportion of Makeover Sales in Total Sales = $55,000 / $165,000
Proportion of Makeover Sales in Total Sales = 33.3333%

Variable Expense Ratio = $7,250 / $55,000 * 100
Variable Expense Ratio = 13.18%

Makeover Sales in Break Even Sales = $114,600 * 33.3333%
Makeover Sales in Break Even Sales = $38,200

Income Statement Claimjumper Makeover Amount % | Amount 76,400 100.00 38,200 23,615 30.91 5,035 52,785 69.09 33,165 Sales Variable Expenses Contribution Margin Fixed Expenses Net Operating Income % 100.00 13.18 86.82 Total 114,600 28,650 85,950 85,950