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 | $ | 730,000 | $ | 270,000 | $ | 1,000,000 | |||
| CM ratio | 69 | % | 80 | % | ? | ||||
Fixed expenses total $598,000 per month.
Required:
1. Prepare a contribution format income statement for the company as a whole.
Total contribution margin percentage: ($719,700 ÷ $1,000,000) = 71.97%.
2. What is the company's break-even point in dollar sales based on the current sales mix?
Answer
The break-even point for the company as a whole is:
| Dollar sales to break even | = | Fixed expenses | |
| Overall CM ratio | |||
| = | $598,000 | = $830,902 | |
| 0.7197 | |||
3. If sales increase by $45,000 a month, by how much would you expect the monthly net operating income to increase?
Answer
The additional contribution margin from the additional sales is computed as follows:
$45,000 × 71.97% CM ratio = $32,387
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