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:

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Product Flight Sure Dynamic Shot $ 690,000 $ 310,000 69% 78% Sales CM ratio Total $ 1,000,000 ? Fixed expenses total $578,500 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 $55,000 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. Required 1 Required 2 Required 3 Prepare a contribution format income statement for the company as a whole. (Round your percentage answers to 2 decimal places i.e. 0.1234 should be entered as 12.34).) Sales Variable expenses Contribution margin Fixed expenses. Flight Dynamic Amount % $ 690,000 100.00 % 213,900 31.00% $ 476,100 69.00 % Sure Shot Amount 1 % $ 310,000 100.00 % 68,200 22.00% $ 241,800 78.00 % Total Company Amount % 1,000,000 100.00 % 282,100 28.00% 717,900 72.00% 578,500

Answer 1

Required 1:
	FIGHT DYNAMIC		SURE SHOT		TOTAL COMPANY
	AMOUNT	%	AMOUNT	%	AMOUNT	%
SALES	690000	100	310000	100	1000000	100
VARIABLE EXPENSES	213900	31	68200	22	282100	28
CONTRIBUTION MARGIN	476100	69	241800	78	717900	72
FIXED EXPENSES					578500
NET OPERATING INCOME					139400
*CONTRIBUTION MARGIN(CM Ratio)%	(476100+241800)/1000000 = 72%
Required 2:
Break even point = fixed cost/total CM Ratio
i.e, = 578500/72%
= 578500/.72
= $803472
Required 3:
The additional contribution margin from the additional sales is computed as follows:$55,000 × 72% CM ratio = $39,600.          Assuming no change in fixed expenses, all of this additional contribution margin of $39,600 should drop to the bottom line as increased net operating income. This answer assumes no change in selling prices, variable costs per unit, fixed expense, or sales mix