Reference no: EM132611453
Gold Star Rice, Ltd., of Thailand exports Thai rice throughout Asia. The company grows three varieties of rice-Fragrant, White, 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 20% 52% 28% 100%
Sales . . . . . . . . . . . . . . . . . . . . . $150,000 100% $390,000 100% $210,000 100% $750,000 100%
Variable expenses . . . . . . . . . . . 108,000 72 % 78,000 20 % 84,000 40 % 270,000 36 %
Contribution margin . . . . . . . . . . $ 42,000 28 % $312,000 80 % $126,000 60 % 480,000 64 %
Fixed expenses . . . . . . . . . . . . . 449,280
Net operating income . . . . . . . . . $30,720
Dollar sales to break even = Fixed expenses/CM ratio = $449,280/0.64 = $702,000
As shown by these data, net operating income is budgeted at $30,720 for the month and breakeven sales at $702,000.
Assume that actual sales for the month total $750,000 as planned. Actual sales by product are: White, $300,000; Fragrant, $180,000; and Loonzain, $270,000.
Required:
Question 1. Make a contribution format income statement for the month based on actual sales data. Present the income statement in the format shown above.
Question 2. Compute the break-even point in dollar sales for the month based on your actual data.
Question 3. Considering the fact that the company met its $750,000 sales budget for the month, the president is shocked at the results shown on your income statement in (1) above. Make a brief memo for the president explaining why both the operating results and the break-even point in dollar sales are different from what was budgeted.