Contribution margin income statement and break-even analysis of a multiproduct company.

PQR company sells two products. The total fixed expenses of the company are 1,197,000. The monthly data of PQR is as follows:

Products
Product A Product B Total
Sales $700,000 $300,000 $1,000,000
Contribution margin ratio 60% 70% ?

Required:

  1. Prepare contribution margin income statement for the company.
  2. Calculate break-even point in dollars.

Solution:

(1) Income statement:

Product A Product B Total
Amount Percent Amount Percent Amount Percent
Sales 1,400,000 100% 600,000 100% 2,000,000 100%
Less variable expenses 560,000 40% 180,000 30% 740,000 37%
———- —– ———- —– ———- —–
840,000 60% 420,000 70% 1,260,000 63%
Less fixed expenses ———- —– ———- —– 1,197,000 —–
———-
63,000
———-

(2) Computation of break-even point:

The PQR company sells two products. Its break-even point can be easily computed by dividing the total fixed expenses by overall contribution margin ratio (CM ratio).

Fixed expenses / Overall CM ratio

1,197,000 / .63

$1,900,000