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	$	336,000		100	%	$	140,000		100	%	$	224,000		100	%	$	700,000		100	%
Variable expenses		100,800		30	%		112,000		80	%		123,200		55	%		336,000		48	%
Contribution margin	$	235,200		70	%	$	28,000		20	%	$	100,800		45	%		364,000		52	%
Fixed expenses																	229,320
Net operating income																$	134,680

Dollar sales to break-even	=	Fixed expenses	=	$229,320	= $441,000
		CM ratio		0.52

As shown by these data, net operating income is budgeted at $134,680 for the month and the estimated break-even sales is $441,000.

Assume that actual sales for the month total $700,000 as planned; however, actual sales by product are: White, $224,000; Fragrant, $280,000; and Loonzain, $196,000.

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

Question 1

Contribution Format Income Statement based on Actual Sales

	White		Fragrant		Loonzain		Total
Particulars	Amount	%	Amount	%	Amount	%	Amount	%
Sales	224,000	100%	280,000	100%	196,000	100%	700,000	100%
Less: Variable Costs	- 67,200	30%	-224,000	80%	-107,800	55%	-399,000	57%
Contribution Margin	156,800	70%	56,000	20%	88,200	45%	301,000	43%
Less: Common Fixed Costs							-229,320
Net Operating Income / (Loss)							71,680

Variable Costs

For White

Variable Costs = 30% of White Sales

= 30% of $ 224,000

= $ 67,200

For Fragrant

Variable Costs = 80% of Fragrant Sales

= 80% of $ 280,000

= $ 224,000

For Loonzain

Variable Costs = 80% of Loonzain Sales

= 55% of $ 196,000

= $ 107,800

Total Company

Variable Costs = 67,200 + 224,000 + 107,800

= $ 399,000

Variable Costs Ratio = Variable Costs / Sales Revenue * 100

= 399,000 / 700,000 * 100%

= 57%

Contribution Margin Ratio = 100% - Variable Costs Ratio

= 100% - 57%

= 43%

Question 2

Break Even Point in Dollars = Fixed Costs / Contribution Margin Ratio

Fixed Costs = $ 229,320

Contribution Margin Ratio = 43%

Break Even Point in Dollars = 229,320 / 43%

Break Even Point in Dollars of Actual Sale = $ 533,302