Question

In: Accounting

Gold Star Rice, Ltd., of Thailand exports Thai rice throughout Asia. The company grows three varieties...

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.

Solutions

Expert Solution

(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.

Please give a positive rating if you are satisfied with this solution and if you have any query kindly ask.

Thanks!


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