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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 $ 98,000 $ 49,000 $ 147,000 Variable expenses 30,400 6,350 36,750 Contribution margin $ 67,600 $ 42,650 110,250 Fixed expenses 83,025 Net operating income $ 27,225 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 :

jafransp

Answer:

A: Contribution margin ratio = 75%

B. Overall break-even point in dollar sales = $110,700

C. See explanation

Explanation:

Requirement A

We know,

Contribution margin ratio = (Contribution Margin ÷ sales revenue) × 100

Given,

From both Claimjumper and Makeover games, we get the following information:

Total Contribution Margin = $110,250

Total sales revenue = $147,000

Putting the values in the above formula, we can get,

Contribution margin ratio = ($110,250 ÷ $147,000) × 100

Contribution margin ratio = 0.75 × 100

Contribution margin ratio = 75%

Requirement B

We know,

Overall break-even point in dollar sales = Fixed Expense ÷ Contribution margin ratio

From both Claim-jumper and Makeover games, we get the following information:

Fixed Expense = $83,025

Contribution margin ratio = 75% (from Requirement A)

Putting the values in the above formula, we can get,

Overall break-even point in dollar sales = $83,025 ÷ 75%

Overall break-even point in dollar sales = $110,700

Requirement C

   Contribution Margin Income Statement (Based on break-even point)

                               Claimjumper      Makeover             Total

Original sales            $98,000         $49,000            $147,000

Percentage sales           67%                 33%                   100%

Sales                          $74,169 (N-1)   $36,531(N-2)    $110,700 (Req. B)

Variable expense      $23,008 (N-3) $4,667(N-3)     $27,675

Contribution Margin                                                    $83,025

Fixed expense                                                             $83,025

Net Income                                                                         $0

Note-1

Break-even sales for Claimjumper = $110,700*67% = $74,169

Note-2

Break-even sales for Makeover = $110,700*33% = $36,531

Note-3

variable expense at break-even = (Current sales*original variable expense)/Original sales

For Claimjumper = $(74,169*30,400)/$98,000 = $23,008

For makeup = $(36,531*6,350)/$49,000 = $4,667

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