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EXERCISE 510 Compute the Break-Even Point for a Multiproduct Company [LO59]

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 . . . . . . . . . . . . . . . . . . . . $30,000 $70,000 $100,000

Variable expenses . . . . . . . . . . 20,000 50,000 70,000

Contribution margin . . . . . . . . . $10,000 $20,000 30,000

Fixed expenses . . . . . . . . . . . . 24,000

Net operating income . . . . . . . . $ 6,000

Case

Units

Sold Sales

Variable

Expenses

Contribution

Margin

per Unit

Fixed

Expenses

Net Operating

Income

(Loss)

1 . . . . . . . . 15,000 $180,000 $120,000 ? $50,000 ?

2 . . . . . . . . ? $100,000 ? $10 $32,000 $8,000

3 . . . . . . . . 10,000 ? $70,000 $13 ? $12,000

4 . . . . . . . . 6,000 $300,000 ? ? $100,000 $(10,000)

Case Sales

Variable

Expenses

Average

Contribution

Margin

Ratio

Fixed

Expenses

Net Operating

Income

(Loss)

1 . . . . . . . . . . . . . . . . $500,000 ? 20% ? $7,000

2 . . . . . . . . . . . . . . . . $400,000 $260,000 ? $100,000 ?

3 . . . . . . . . . . . . . . . . ? ? 60% $130,000 $20,000

4 . . . . . . . . . . . . . . . . $600,000 $420,000 ? ? $(5,000)

Product

Flight Dynamic Sure Shot Total

Sales . . . . . . . . . $150,000 $250,000 $400,000

CM ratio . . . . . . . 80% 36% ?

Required:

Compute the overall contribution margin (CM) ratio for the company.

Compute the overall break-even point for the company in dollar sales.

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.