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:

		Product
		Flight Dynamic			Sure Shot			Total
Sales	$	710,000		$	290,000		$	1,000,000
CM ratio		69	%		78	%		?

Fixed expenses total $559,500 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 $48,000 a month, by how much would you expect the monthly net operating income to increase?

Answer 1

Answer

• Requirement 1

Contribution format Income Statement for the company

Sales	$1,000,000
Variable Cost	$283,900
Contribution margin	$716,100
Fixed expenses	$559,500
Net Operating Income	$156,600

--Workings

Working		Flight Dynamic	Sure Shot	Total
A	Sales	$710,000	$290,000	$1,000,000
B = Sales/Total Sales	Sales Mix	71.00%	29.00%	100.00%
C	CM Ratio	69.00%	78.00%
D = B x C	Weighted Average CM ratio	48.99%	22.62%	71.61%
E	Contribution margin [Sales x CM Ratio]	$489,900	$226,200	$716,100
F = A - E	Variable Cost	$220,100	$63,800	$283,900

• Requirement 2

A	Fixed expenses	$559,500
B	Weighted Average CM ratio	71.61%
C = A/B	Company's Break Even in dollars	$781,315 Answer

• Requirement 3

A	Increase in Sales	$48,000
B	Weighted Average CM ratio	71.61%
C = A x B	Operating Income would increase by	$34,373 Answer