Question

Exercise 6-12 Multiproduct Break-Even Analysis (LO6-9] 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: Product Flight Dynamic Sure Shot $150,000 $250,000 B0% 36% Sales CM ratio Total $400,000 Fixed expenses total $183,750 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 $100,000 a month, by how much would you expect the monthly net operating income to increase?

I am stuck on this

Answer 1

1.
For red boxes
Variable Expense = $190000 / 400000 = 47.50%
Contribution Margin = $210000 / 400000 = 52.50%

2.
Break even point in dollars = Fixed Costs / Contribution Margin Ratio
= $183750 / 52.50% = $350000

3.
Net Operating Income increase = $100000 x 52.50% = $52500

Since Sales is above break even point and no more fixed costs will be incurred.