Question

Exercise 5-10 Multiproduct Break-Even Analysis [LO5-9]

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below:

	Claimjumper				Makeover			Total
Sales	$	106,000			$	53,000		$	159,000
Variable expenses		32,800				6,950			39,750
Contribution margin	$	73,200			$	46,050			119,250
Fixed expenses									84,600
Net operating income								$	34,650

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

1) Overall contribution margin ratio = 119250/159000 = 75%

2) Overall break even sales = 84600/.75 = 112800

3) Contribution margin income statement

	Claimjumper	Makeover	Total
Sales	75200	37600	112800
Variable cost	23269	4931	28200
Contribution margin	51931	32669	84600
Fixed cost			84600
Net income			0