EXERCISE 5-10 Multiproduct Break-Even Analysis LO5-9 Lucido Products markets two

Question

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 Variable expenses Contribution margin $30,000 $70,000 $100,000 20000 5,000 70,000 $10,000 $20,000 30,000 24,000 S 6,000 Net operating income Required: I. 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. Verify the overall break-even point for the company by constructing a contribution format income statement showing the appropriate levels of sales for the two products

Explanation / Answer

Ans. 1 Overall Contribution Margin Ratio = Total Contribution Margin / Total Sales

Total Contribution Margin = 30,000

Total Sales = 100,000

Overall CM Ratio = 100,000 / 30,000 * 100 = 30 %

Ans. 2 Overall Break-Even Point in Dollar sales = Total Fixed Expenses / Contribution Margin Ratio

Total Fixed Expenses = 24,000

Contribution Margin = 0.30

Overall Break Even Point In dollar Sales = 24,000 / 0.30 = 80,000

Ans. 3 To cunstruct the required income statement we must first determine the relative sales mix for Two products.

Claimjumper Makeover Total

Original dollar sales $30,000 $70,000 $100,000

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