Lucido Products markets two computer games: Claimjumper and Makeover. A contribu

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:

Required:

Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products.

Claimjumper Makeover Total Sales $ 104,000 $ 52,000 $ 156,000 Variable expenses 25,960 5,240 31,200 Contribution margin $ 78,040 $ 46,760 124,800 Fixed expenses 91,680 Net operating income $ 33,120

Explanation / Answer

In this question, the variable expense is 20% of the sales which means the contribution margin ratio is 80%. So the break-even point is =

Fixed expenses/contribution margin ratio

= $91680/80% = $114600

Break-even point = $114600

Contribution Income statement

Sales $114600

Variable expenses (20% of sales) ($22920)

Contribution Margin $91680

Fixed expenses ($91680)

Profit 0

At the $114600 level of sales, we can achieve the break-even point for the two products.

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