Question

Gold Star Rice, Ltd., of Thailand exports Thai rice throughout Asia. The company grows three varieties of rice—White, Fragrant, and Loonzain. Budgeted sales by product and in total for the coming month are shown below:

Product
	White			Fragrant			Loonzain				Total
Percentage of total sales		48%			20%			32%				100%
Sales	$	3,40,800	100%	$	1,42,000	100%	$	2,27,200	100%		$	710,000		100%
Variable expenses		102,240	30%		1,13,600	80%		1,24,960	55%			3,40,800		48%
Contribution margin	$	2,38,560	70%	$	28,400	20%	$	1,02,240	45%			3,69,200		52%
Fixed expenses												2,32,960
Net operating income											$	1,36,240

Dollar sales to break even =	Fixed expenses	=	$2,32,960	= $4,48,000
	Unit CM		$0.52

   As shown by these data, net operating income is budgeted at $136,240 for the month and the estimated break-even sales is $448,000. Assume that actual sales for the month total $710,000 as planned. Actual sales by product are: White, $227,200; Fragrant, $284,000; and Loonzain, $198,800. Required:

1. Prepare a contribution format income statement for the month based on the actual sales data.

2. Compute the break-even point in dollar sales for the month based on your actual data.

Answer 1

STEP 1:

 

1.Contribution format income statement for the month based on the         actual sales data 

 

	White		Fragrant		Loonzain		TOTAL
Percentage of total sales		32.00%		40.00%		28.00%		100.00%
Sales	227200	100%	284000	100%	198800	100%	710000	100%
variable Expenses	68160	30%	227200	80%	109340	55%	404700	57.00%
Contribution Margin	159040	70%	56800	20%	89460	45%	305300	43.00%
Fixed Expenses							232960
Net Operating Income							72340

 

STEP 2:

 

   Break even point in dollar sales 

                               =Fixed expenses /Contribution margin ratio 

                                = 232960/(100%-57%)

                                = 541767.4

 

 

                          

 working Notes :

 

1. percentage of total sales calculation of White = 2,27,200 / 7,10,000

                                                                             = 0.32 i.e., 32%

  the other two percentages should be calculated like white.

 

2.In the Budgeted data the variable percentage is given .The same has been used in the actual data .

         White = sales x variable percentage

                   = 2,27,200 x 30%

                   = 68160

 

3.Contribution is the difference between sales and variable percentage.

                  I.e., [100% - 30 % ]= 70%

 

1. Net Operating Income from actual sales data is $ 72,340.

2. Break even point in dollar sales = 541767.4