Managerial Accounting
Managerial Accounting
16th Edition
ISBN: 9781259995484
Author: Ray Garrison
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 5, Problem 12E

EXERCISE 5-12 Multiproduct Break-Even Analysis LO5-9
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:

Chapter 5, Problem 12E, EXERCISE 5-12 Multiproduct Break-Even Analysis LO5-9 Olongapo Sports Corporation distributes two

Fixed expenses total $183,750 per month.

Required:

  1. Prepare a contribution format income statement for the company as a whole. Carry computations to one decimal place.
  2. What is the company's break-even point in dollar sales based on the current sales mix?
  3. If sales increase by $100,000 a month, by how much would you expect the monthly net operating income to increase? What are your assumptions?

Expert Solution & Answer
Check Mark
To determine

Break-even analysis: It is an analysis of sales revenue or unit where a company is neither earning profits nor incurring any loss.

The preparation of contribution format income statement and break-even analysis.

Answer to Problem 12E

Solution:

1) Contribution formal income statement for the company as a whole. Carry computations to one decimal place is shown below:-

    Product
    Fight Dynamic Sure Shot Total
    Sales $150,000 $250,000 $400,000
    CM ratio 80% 36% 52.5%
    Olongapo Sports Corporation’s Contribution format income statement
    Total
    Sales $400,000
    Variable expenses $190,000
    Contribution Margin $210,000
    Fixed expenses $183,750
    Net operating income $26,250

2) The Break-even point in dollar sales based on the current sales mix is $ 350,000

  

3) The contribution format income statement with increase in sales by $ 100,000 is shown below:-

    Olongapo Sports Corporation’s Contribution format income statement
    Total
    Sales $500,000
    Variable expenses $237,500
    Contribution Margin $262,500
    Fixed expenses $183,750
    Net operating income $78,750

It is assume that when sales increase by $100,000, the variable expense increase by 25% and the net operating income increases by 200%.

Explanation of Solution

  *1) Contribution margin ratio   =  Contribution margin Sales revenue( Fight Dynamic)                                                                0.80 =  Contribution margin  $150,000                                           = $150,000 * 0.80                                           = $120,000

  Breakeven point in dollar sales=  Fixed Expenses Contribution margin ratio                                                 = $183,750 0.525                                                    = $350,000

Managerial Accounting, Chapter 5, Problem 12E

Given:

    Product
    Fight Dynamic Sure Shot Total
    Sales $150,000 $250,000 $400,000
    CM ratio 80% 36% ?

Fixed expenses total $183,750 per month.

Conclusion

Hence it is concluded that the Mauro Products will neither earn profit nor incur loss at $350,000sales revenue. But if the company earns beyond this point, it will make profit and if it falls below the point, the company will suffer loss. A break-even point is technique used the companies to predict the outcome of a decision based on the analysis. It shows the exact point where a company will neither make profit nor suffer loss.

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Chapter 5 Solutions

Managerial Accounting

Ch. 5.A - Case 5A-11 Mixed Cost Analysis and the Relevant...Ch. 5.A - CASE 5A-12 Analysis of Mixed Costs in a Pricing...Ch. 5 - Prob. 1QCh. 5 - Often the most direct route to a business decision...Ch. 5 - Prob. 3QCh. 5 - What is the meaning of operating leverage?Ch. 5 - What is the meaning of break-even point?Ch. 5 - 5-6 In response to a request from your immediate...Ch. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 1AECh. 5 - Prob. 2AECh. 5 - Prob. 3AECh. 5 - Prob. 4AECh. 5 - Prob. 5AECh. 5 - Prob. 1F15Ch. 5 - Prob. 2F15Ch. 5 - Prob. 3F15Ch. 5 - Prob. 4F15Ch. 5 - Prob. 5F15Ch. 5 - Prob. 6F15Ch. 5 - Prob. 7F15Ch. 5 - Prob. 8F15Ch. 5 - Prob. 9F15Ch. 5 - Prob. 10F15Ch. 5 - Prob. 11F15Ch. 5 - Prob. 12F15Ch. 5 - Prob. 13F15Ch. 5 - Prob. 14F15Ch. 5 - Prob. 15F15Ch. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - EXERCISE 5-10 Multiproduct Break-Even Analysis...Ch. 5 - Prob. 11ECh. 5 - EXERCISE 5-12 Multiproduct Break-Even Analysis...Ch. 5 - EXERCISE 5-13 Changes in Selling Price, Sales...Ch. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19PCh. 5 - PROBLEM 5-20 CVP Applications: Break-Even...Ch. 5 - PROBLEM 5-21 Sales Mix; Multiproduct Break-Even...Ch. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - PROBLEM 5-25 Changes in Fixed and Variable Costs;...Ch. 5 - PROBLEM 5-26 CVP Applications; Break-Even...Ch. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - PROBLEM 5-31 Interpretive Questions on the CVP...Ch. 5 - CASE 5-32 Break-Even Analysis for Individual...Ch. 5 - Prob. 33C
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