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MediaSol Inc. contribution margin, breakeven, impact profit

Please complete questions in attachment.

MediaSol Inc. Produces affordable, high quality personal mulitmedia entertainment devices. The company's Video Division manufactures three portable video players - the Stnadard, the Deluxe, and the Pro-that are widely used by the younger generation. Selected information on the portable video players is given below:

Standard Deluxe Pro
Selling price per video player $80 $120 $180
Variable expenses per video player:
Production 44 54 63
Selling (10% of selling price) 8 12 18

All sales are made through the company's own retail outlets. The Video Division has the following fixed costs:

Per Month
Fixed production costs $90,000
Advertising expense 75,000
Administrative salaries 37,500
Total $202,500

Sales, in unites, over the past two months have been as follows:

Standard Deluxe Pro Total
April 1,000 500 2,500 4,000
May 3,750 750 1,500 6,000

1. Using the contribution approach, prepare an income statement for April and an income statement for May,
2. with the following headings:

Standard Deluxe Pro Total
Amount % Amount % Amount % Amount %

Place the fixed expenses only in the Total column. Do not show percentages for the fixed expenses.

2. On seeing the income statements in (1) above, the president stated, "I can't believe this!
We sold 50% more portable video players in May than in April, yet profits went down. It's obvious that costs are
out of control in that division." What other explanation can you give for the drop in operating income?

3. Compute the Video Division's break-even point in dollar sales for April.

4. Has May's break-even point in dollar sales gone up or down from April's break-even point? Explain without
computing a break-even point for May.

5. Assume that sales of the standard video play increase by $35,000. What would be the effect on operating
income? What would be the effect if Pro video player sales increased by $35,000? Do not prepare income
statements; use the incremental analysis approach in determining your answer.

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Solution Summary

Your tutorial is attached in excel. Click in cells to see computations. Instructional commentary has been added on the sheets for you.