Problem 5-28 (Algo) Sales Mix; Multiproduct Break-Even Analysis [LO5-9]

Topper Sports, Incorporated, produces high-quality sports equipment. The companys Racket Division manufactures three tennis racketsStandard, Deluxe, and Prowidely used in amateur play. Selected information on the rackets is given below:

StandardDeluxeProSelling price per racket$ 60.00$ 90.00$ 100.00Variable expenses per racket:Production$ 36.00$ 45.00$ 36.00Selling (5% of selling price)$ 3.00$ 4.50$ 5.00

All sales are made through the companys own retail outlets. The Racket Division has the following fixed costs:

Per MonthFixed production costs$ 134,000Advertising expense114,000Administrative salaries64,000Total$ 312,000

Sales, in units, over the past two months were as follows:

StandardDeluxeProTotalApril2,0001,0005,0008,000May8,0001,0003,00012,000

Required:

1-a. Prepare contribution format income statements for April.

1-b. Prepare contribution format income statements for May.

3. Compute the Racket Divisions break-even point in dollar sales for April.

4. Will the break-even point be higher or lower with Mays sales mix than with Aprils sales mix?

5. Assume that sales of the Standard racket increase by $21,400. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $21,400? Do not prepare income statements; use the incremental analysis approach in determining your answer.