KLM produces a variety of hockey equipment. The companys stick division manufactures three hockey sticks the Standard, the Deluxe and the Pro that are widely used by amateur players. Selected information on the sticks is given below:

Standard Deluxe Pro

Selling price $40.00 $60.00 $90.00

Variable cost per stick:

Production 22.00 27.00 31.50

Selling (5% of selling price) 2.00 3.00 4.50

All sales are made through the companys own retail stores. The cost records show that the following fixed costs are assignable to the stick division:

Per Month

Production costs $120,000

Advertising expenses 100,000

Administrative salaries 50,000

Total fixed costs $270,000

Sales, in units, for the month of April and May are as follows:

Standard Deluxe Pro

April 2,000 1,000 5,000

May 8,000 1,000 3,000

Required:

1. Using the contribution margin approach, prepare income statements for the month of April and an income statement for the month of May. Your income statements should show separate columns for the three different types of sticks and a final column for the three sticks in total. Do not try to allocate the fixed costs to the different sticks; simply place the fixed expenses in the total column.

2. Calculate the contribution margin, in dollars and % for the three sticks.

3. How can you explain the fact that although total sales increased in May, profits decreased?

4. Calculate KLMs break-even point in dollars for the month of April

5. Assuming that sales of Standard sticks increase by $20,000, how would net income be affected?