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:**

- Prepare contribution margin income statement for the company.
- 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

August 25th, 2014 at 10:43 am

Can I have the full calculation of 37%

August 25th, 2014 at 11:37 am

@Phillipa

(740,000/2000,000)*100 = 37% or 0.37

December 15th, 2014 at 4:17 am

the break even point $1,900,000 can not cover the fixed expenses after deducted by variable expenses $740,000, why?

December 16th, 2014 at 5:12 am

It must cover

BEP = VE + FE

1,900,000 = 703,000* + 1,197,000

*1,900,000(.37)