Question

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: Product Flight Sure Dynamic Shot $ 690,000 $ 310,000 68% 76% Sales CM ratio Total $ 1,000,000 ? Fixed expenses total $575,000 per month. Required: 1. Prepare a contribution format income statement for the company as a whole. 2. What is the company's break-even point in dollar sales based on the current sales mix? 3. If sales increase by $56,000 a month, by how much would you expect the monthly net operating income to increase? Complete this question by entering your answers in the tabs below.

Answer 1

	Flight Dynamic	Sure Shot	Total
Sales	$690,000	$310,000	$1,000,000
Contribution margin	469,200	235,600	704,800
CM Ratio	68%	76%	70.48% (704,800/1,000,000*100)

1.

Contribution Format Income Statement
	Flight Dynamic	Sure Shot	Total
Sales	$690,000	$310,000	$1,000,000
Variable expense	220,800 (690,000*32%)	74,400 (310,000*24%)	295,200
Contribution margin	469,200	235,600	704,800
Fixed expenses			575,000
Net income			$129,800

2.

Break even point in sales = Fixed expenses / Contribution ratio

Contribution ratio = $704,800/1,000,000*100 = 70.48%

Break even point in sales = $575,000 / 70.48% = $815,834

3.

Sales ($1,000,000+56,000)	$1,056,000
Variable expenses (1,056,000*29.52%)	(311,731)
Contribution margin	744,269
Fixed expenses	(575,000)
Net income	$169,269

Net income increase by $39,469 ($169,269 - 129,800)