Question

Smithen Company, a wholesale distributor, has been operating for only a few months. The company sells three products—sinks, mirrors, and vanities. Budgeted sales by product and in total for the coming month are shown below based on planned unit sales as follows:

	Units		Percentage
Sinks	800		50	%
Mirrors	400		25	%
Vanities	400		25	%
Total	1,600		100	%

	Product
	Sinks						Mirrors						Vanities						Total
Percentage of total sales		47	%					20	%					33	%					100	%
Sales	$	327,132.00			100	%	$	139,800			100	%	$	232,068.00			100	%	$	699,000.00			100	%
Variable expenses		65,426.40			20	%		97,860			70	%		139,240.80			60	%		302,527.20			43	%
Contribution margin	$	261,705.60			80	%	$	41,940			30	%	$	92,827.20			40	%		396,472.80			57	%
Contribution margin per unit	$	327.13					$	104.85					$	232.07
Fixed expenses																				359,670.00
Operating income																			$	36,802.80

Break-even point in sales dollars	=	Fixed expenses	=	$359,670	=	$631,000
		Overall CM ratio		0.57

Break-even point in unit sales:

Total Fixed expenses		$359,670
	=		= 1,451.48 units
Weighted-average CM per unit		$247.80*
*($327.13 × 0.50) + ($104.85 × 0.25) + ($232.07 × 0.25)

Assume that actual sales for the month total $770,333 (1,800 units), with the CM ratio and per unit amounts the same as budgeted. Actual fixed expenses are the same as budgeted, $359,670. Actual sales by product are as follows: sinks, $257,616 (630 units); mirrors, $251,640 (720 units); and vanities, $261,077 (450 units).

Required:

1. Prepare a contribution format income statement for the month based on actual sales data. (Round your percentage answers to the nearest whole number.)

2. Compute the break-even point in sales dollars for the month, based on the actual data. (Round your intermediate calculations to the nearest whole percent. Round your final answer to the nearest whole dollar.)

3. Calculate the break-even point in unit sales for the month, based on the actual data. (Round your final answer to the nearest whole number.)

Answer 1

• [1]

	Sinks			Mirrors			Vanities			Total
Percent of total sales	33%		33%			34%			100%
Sales	$257,616	100%	$251,640		100%	$261,077		100%	$770,333		100%
Variable expenses	$51,523	20%	$176,148		70%	$156,646		60%	$384,317		50%
Contribution margin	$206,093	80%	$75,492		30%	$104,431		40%	$386,016		50%
Contribution margin per unit	$ 327.13		$ 104.85			$ 232.07
Fixed expenses									$359,670
Net Operating Income									$26,346

• [2]

A	Fixed Expense	$359,670
B	CM ratio [50% or 0.50]	50%
C = A/B	Break Even point in sales $	$717,758

Dollar sales to break-even	=	Fixed expenses	=	$359,670	$717,758
		CM ratio		0.50

• [3] Break even in units
  >Working

	Units	Percentage
Sinks	630	35%
Mirrors	720	40%
Vanities	450	25%
		0%
Total	1800	100%

>Weighted Average CM per unit = ($327.13 x 35%) + ($104.85 x 40%) + ($232.07 x 25%)
= $ 214.45

Break even in units = $ 359670 fixed cost / $ 214.45
= 1677.17 units.