Question

Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg expects to sell 80,000 regular models and 16,000 deluxe models. A segmented income statement for the two products is as follows:

  Regular Model Deluxe Model Total

Sales $12,000,000   $10,720,000   $22,720,000  

Less: Variable costs 7,200,000   6,432,000   13,632,000  

   Contribution margin $4,800,000   $4,288,000   $9,088,000  

Less: Direct fixed costs 1,200,000   960,000   2,160,000  

   Segment margin $3,600,000   $3,328,000   $6,928,000  

Less: Common fixed costs     1,702,400  

   Operating income     $5,225,600  

Required:

1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit.

Regular models units

Deluxe models units

2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal-based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar.

Contribution margin ratio

Revenue$

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Answer 1

	Calculation of cost and sales per unit
		Regular Model	Deluxe Model
	Units sold	80000	16000
	Sales per unit	$150	$670
	Variable cost per unit	$90	$402
	Contribution margin per unit	$60	$268
1.a	Calculation of operating income
		Regular Model	Deluxe Model	Total
	Units sold	80000	16000	96000
	Sales per unit	$150	$670
	Variable cost per unit	$90	$402
	Contribution margin per unit	$60	$268	$94.67
	Contribution margin	$48,00,000	$42,88,000	$90,88,000
Less:	Direct fixed expenses	$12,00,000	$9,60,000	$21,60,000
	Segment margin	$36,00,000	$33,28,000	$69,28,000
Less:	Common fixed expenses			$17,02,400
	Operating income			$52,25,600
Ans 1	Break even point(Direct fixed expenses/CM per unit)	20,000	3,582
	Contribution margin ratio(Contribution margin/Sales)			40%
Ans 2	Break even point in $(Total Fixed expenses/CM ratio)			$96,56,000