Question

Exercise 6-10 Multiproduct Break-Even Analysis (L06-9) Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Claimjumper $116,000 28,840 $ 87,160 . Makeover $ 58,000 5 ,960 $ 52,040 Total $ 174,000 34,800 139,200 90,720 $ 48,480 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. Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 What is the overall contribution margin (CM) Overall CM ratio Required 2 >

Answer 1

Answer to Requirement 1:

Overall contribution margin ratio = Overall contribution margin / Overall sales
Overall contribution margin ratio = $139,200 / $174,000
Overall contribution margin ratio = 0.80 or 80%

Answer to Requirement 2:

Overall breakeven point in dollar sales = Fixed expenses / Overall contribution margin ratio
Overall breakeven point in dollar sales = $90,720 / 0.80
Overall breakeven point in dollar sales = $113,400

Answer to Requirement 3:

Sales Variable expenses Contribution margin Fixed expenses Net operating income Claimjumper Makeover $ 75,600 $ 37,800 $ $ 18,794 $ 3,886 $ $ 56,806 $ 33,914 $ $ Total 113,400 22,680 90,720 90,720

Claimjumper:

Weight of total sales = $116,000 / $174,000
Weight of total sales = 66.667%

Variable expenses = $28,840 / $116,000
Variable expenses = 0.2486 or 24.86%

Makeover:

Weight of total sales = $58,000 / $174,000
Weight of total sales = 33.333%

Variable expenses = $5,960 / $58,000
Variable expenses = 0.1028 or 10.28%