Question

value: 10.00 points Gogan Company manufactures and sells two products: Basic and Deluxe. Monthly sales, CM ratios, and the CM per unit for the two products are shown below Product Basic Total Deluxe $600,000 $400,000 $1,000,000 Sales Contribution margin ratio Contribution margin per unit 60% 9.00 11.50 The company's fixed expenses total $400,000 per month. Requirea 1. Prepare a contribution format income statement for the company as a whole. Basic Deluxe Total Amount Amount Amount

Answer 1

Ans-1- Preparing a contribution format income statement for the company as a whole:-

	Basic		Deluxe		Total
	Amount	%	Amount	%	Amount	%
Sales	$600,000	60%	$400,000	40%	1,000,000	100%
Less: Variable cost (Sales- Contribution)	$240,000	48%	$260,000	52%	$500,000	100%
Contribution	$360,000 ($600,000*60%)	72%	$140,000 ($400,000*35%)	28%	$500,000	100%
Less: Fixed Cost					$400,000
Profit					$100,000

Ans-2-Computing the overall break-even point in dollars for the company based on the current sales mix:-

PV Ratio= Contribution / Sales *100

=$500,000/ $1,000,000*100

=50%

Break-even point in dollars= Fixed Cost/ PV Ratio

=$400,000/50%

=$800,000

Ans-3- Computing the overall break-even point in units for the company based on the current sales mix:-

Break-even point in units= Fixed Cost/ Contribution per unit

	Basic	Deluxe	Total
Contribution	$360,000	$140,000	$500,000
Contribution per unit (Given)	$9	$11.50	$9.58
Sales units	40,000 units ($360,000/$9)	12,174 units ($140,000/$11.50)	52,174

Break-even point in units= $400,000/$9.58

=41,754 units

Ans-4-a-If sales increase by $50,000 per month,

Sales	$1,050,000 ($1,000,000+$50,000)
Less: Variable Cost (50%)	$525,000 ($1,050,000*50%)
Contribution	$525,000
Less: Fixed Cost	$400,000
Profit	$125,000

Ans-4-b- I assumed that No change in variable cost per unit and no change in fixed expenses.

Ans-5-a- If sales increase by 5,000 units per month:-

Sales (52,174+5,000= 57,174*19.1667)	$1,095,837
Less: Variable cost (50%)	$547,919
Contribution	$547,918
Less: Fixed Cost	$400,000
Profit	$147,918

Selling price per unit= $1,000,000/ 52,174=$19.1667

Ans--5-b-I assumed that:-

No change in selling price

No change in variable cost per unit

No change in fixed expenses