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:

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	$	660,000		$	340,000		$	1,000,000
CM ratio		65	%		73	%		?

Fixed expenses total $576,000 per month.

Required:

1. Prepare a contribution format income statement for the company as a whole.

2. What is the company's break-even point in dollar sales based on the current sales mix?

3. If sales increase by $56,000 a month, by how much would you expect the monthly net operating income to increase?

Explanation

1.

Total contribution margin percentage: ($677,200 ÷ $1,000,000) = 67.72%.

2.

The break-even point for the company as a whole is:

Dollar sales to break even	=	Fixed expenses
		Overall CM ratio
	=	$576,000	= $850,561
		0.6772

3.

The additional contribution margin from the additional sales is computed as follows:

$56,000 × 67.72% CM ratio = $37,923

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