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: claimjumper $ 114,000 35,200 $ 78,800 Makeover $ 57,000 7,550 $ 49,450 Sales Variable expenses Contribution margin Fixed expenses Net operating income Total $ 171,000 42,750 128, 250 83,475 $ 44,775 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 = Contribution margin / Sales

Overall contribution margin ratio = $128,250 / $171,000*100 = 75%

2.

Overall break-even point = Fixed expenses / Contribution ratio

Overall break-even point = $83,475 / 75% = $111,300

3.

	Claimjumper	Makeover	Total
Sales	$74,200 ($111,300*114/171)	37,100 ($111,300*57/171)	$111,300
Variable expenses	22,911 (74,200*35,200/114,000)	4,914 (37,100*7,550/57,000)	27,825
Contribution margin	51,289	32,186	83,475
Fixed expenses			83,475
Net operating income			$0