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	$	292,800		100	%	$	122,000		100	%	$	195,200		100	%	$	610,000		100	%
Variable expenses		87,840		30	%		97,600		80	%		107,360		55	%		292,800		48	%
Contribution margin	$	204,960		70	%	$	24,400		20	%	$	87,840		45	%		317,200		52	%
Fixed expenses																	224,120
Net operating income																$	93,080

Dollar sales to break-even	=	Fixed expenses	=	$224,120	= $431,000
		CM ratio		0.52

As shown by these data, net operating income is budgeted at $93,080 for the month and the estimated break-even sales is $431,000.

Assume that actual sales for the month total $610,000 as planned. Actual sales by product are: White, $195,200; Fragrant, $244,000; and Loonzain, $170,800.

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

(1) Contribution format income statement for the month based on the actual sales data is as follows -

Contribution Income Statement
	WHITE	FRAGRANT	LOONZAIN	TOTAL
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	195,200	100%	244,000	100%	170,800	100%	610,000	100%
Variable Expenses	58,560	30%	195,200	80%	93,940	55%	347,700	57%
Contribution Margin	136,640	70%	48,800	20%	76,860	45%	262,300	43%
Fixed Expenses							224,120
Net Income	38,180

Therefore, Net Income is $38,180.

Notes -

Contribution = Sales - Variable Expenses

Net Income = Contribution Margin - Fixed Expenses

(2) Computation of break-even point using CM ratio is as follows -

Dollar sales to break even = Fixed Expenses / Contribution margin ratio

= 224,120 / 0.43

= $521,209.

Therefore, break-even point using CM ratio is $521,209.

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