Break-even analysis: It is an analysis and study of variables with goal to find a point where a company is neither making profits nor suffering any losses.
The Overall contribution margin ratio and overall break-even point in dollar sales.
Answer to Problem 10E
Solution:
- The Contribution Margin Ratio is 30%
- Break-Even point in dollar sales is $ 80,000
- Verification of Break-Even point with the construction of the contribution format income statement by showing the appropriate levels of sales for the two products is shown below.
Explanation of Solution
A contribution margin ratio is computed by dividing the total contribution margin by total Sales revenue from both products. An overall break-even point is ascertained by dividing the total fixed expense of both products by the overall contribution margin ratio.
1)
Overall Contribution Margin Ratio = Overall Contribution MarginOverall Sales Revenue = $30,000$100,000 = 30%
2) Computation of Overall Break−Even Point in dollar salesOverall Break−Even Point in Dollar sales= Total Fixed costOverall Contribution Margin Ratio = $24,0000.30 = $80,0003)
Lucido Products contribution format income statement | |||
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 | $7,200 | $16,800 | $24,000 |
Net operating income | $2,800 | $3,200 | $6,000 |
Given:
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 |
Hence, the Overall CM ratio 30% and Overall break-even point in dollar sales is $80,000 in case of Lucido Products. A contribution margin ratio is basically the percentage of contribution margin with sales revenue.
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Chapter 6 Solutions
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