Okabee enterprises is the distributor for two products model...

Okabe Enterprises is the distributor for two products, Model A100 and Model B900. Monthly sales and the contribution margin ratios for the two products follow: Product Model A100 Model B900 Total Sales . . . . . . . . . . . . . . . . . . . . . . . . $700,000 $300,000 $1,000,000 Contribution margin ratio . . . . . . . . . 60% 70% ? The company’s fixed expenses total $598,500 per month. Required: 1. Prepare a contribution format income statement for the company as a whole. 2. Compute the break-even point for the company based on the current sales mix. 3. If sales increase by $50,000 per month, by how much would you expect net operating income to increase? What are your assumptions?

Transcript

00:01 In the question it is given that okabe enterprise has two products that are model a100 and the another product that they are selling is model b 900 and it is said that the sales value for model a is $700 ,000 and for model b is $700 ,000 and for model b is $300 ,000.

00:43 Hundred thousand dollar so the total figure comes to one million dollar so we can say that the sales mix is in 70 % of model a and 30 % of model b that comes to 100 % so this is the sales mix we have also it is say that the contribution margin for these two product are 60 % and 70 % and 70 % percent 60 percent and 70 percent individually and the fixed cost total one is given to be five hundred ninety eight five hundred dollars so five nine eight five hundred dollars these are the fixed cost now once we know these sales and the contribution we can easily know what are the variable cost percent so variable cost will be how much? variable cost is sales minus contribution margin.

02:07 So product a, if sales is of 100%, and out of that, 60 % is the contribution margin.

02:15 So the variable cost will be of 40%.

02:17 Similarly for model b, if the sales, if we consider $300 ,000 sales as 100%, and out of this, 70 % is the contribution margin, then the variable cost will be 30 % so we have sales mix figure variable cost and contribution margin so the first thing that the question asks is the contribution margin income statement so we will preparing contribution format income statement for the company as a whole so for this we will be taking first column as particulars.

03:32 Second one will be our model a 100, then model b 900 and the third one will be the total column.

03:56 Okay.

03:57 First of all, the sales value in dollar.

04:01 For model a, it is said to be $700 ,000 and for model b it is $300 ,000.

04:12 So total sales for the company as a whole is going to be 1 million now less variable cost now the variable cost for model a we have find out it is 40 % and for model b it is 30 % so 40 % of 700 ,000 dollars comes to 280 ,000 dollar and 30 % and 30 % of $300 ,000 comes to $90 ,000.

05:16 Okay, so the total variable cost will be $370 ,000.

05:27 So total company as a whole variable cost percentage will be 370 ,000 upon total sales of 1 million into 100.

05:44 This gives us 37%.

05:48 So this $3 ,370 ,000 variable cost is 37 % of the sales figure.

05:57 Now, after computing this, we can easily find the contribution.

06:09 Okay.

06:10 For model a, the contribution is going to be sales minus variable cost, that is, $420 ,000...