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	$	384,000		100	%	$	160,000		100	%	$	256,000		100	%	$	800,000		100	%
Variable expenses		115,200		30	%		128,000		80	%		140,800		55	%		384,000		48	%
Contribution margin	$	268,800		70	%	$	32,000		20	%	$	115,200		45	%		416,000		52	%
Fixed expenses																	224,120
Net operating income																$	191,880

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 $191,880 for the month and the estimated break-even sales is $431,000.

Assume that actual sales for the month total $800,000 as planned. Actual sales by product are: White, $256,000; Fragrant, $320,000; and Loonzain, $224,000.

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

• Requirement 1

	White		Fragrant			Loonzain			Total
Percent of total sales	32%		40%		28%			100%
Sales	$256,000	100%	$320,000	100%	$224,000		100%	$800,000		100%
Variable expenses	$76,800	30%	$256,000	80%	$123,200		55%	$456,000		57%
Contribution margin	$179,200	70%	$64,000	20%	$100,800		45%	$344,000		43%
Fixed expenses								$224,120
Net Operating Income								$119,880

• Requirement 2

A	Fixed Expense	$224,120
B	CM ratio [43%] or 0.43	43%
C = A/B	Break Even point in sales $	$521,209