Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below:

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	$	118,000			$	59,000		$	177,000
Variable expenses		29,320				6,080			35,400
Contribution margin	$	88,680			$	52,920			141,600
Fixed expenses									89,520
Net operating income								$	52,080

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

1.

The overall contribution margin ratio can be computed as follows:

Overall CM ratio	=	Total contribution margin
		Total sales
	=	$141,600	= 80%
		$177,000

2.

The overall break-even point in dollar sales can be computed as follows:

Overall break-even	=	Total fixed expenses
		Overall CM ratio
	=	$89,520	= $111,900
		80%

3.

	Claimjumper			Makeover			Total
Original dollar sales	$	118,000		$	59,000		$	177,000
Percent of total		66.67	%		33.33	%		100	%
Sales at break-even	$	74,600		$	37,300		$	111,900

Variable expenses:

Claimjumper variable expenses: ($74,600/$118,000) × $29,320 = $18,536

Makeover variable expenses: ($37,300/$59,000) × $6,080 = $3,844