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	600		50%
Mirrors	300		25%
Vanities	300		25%
Total	1,200		100%

	Product
	Sinks			Mirrors			Vanities			Total
Percentage of total sales	50%			30			20			100%
Sales	$240,790.00		100%	$145,200		100%	$98,010.00		100%	$484,000.00		100%
Variable expenses	72,237.00		30%	116,160		80%	53,905.50		55%	242,302.50		50%
Contribution margin	$168,553.00		70%	$29,040		20%	$44,104.50		45%	$241,697.50		50%
Contribution margin per unit	280.92			96.80			147.02
Fixed expenses										209,000.00
Operating income										32,697.50

Break-even point in unit sales :

fixed expenses/overall CM ratio = 209,000/0.5 = 418,000

Break-even point in unit sales:

total fixed expenses/weighted-average CM per unit = 209,000/201.41* = 1,037.66 units

*(280.92 x 0.5) + (96.80 x 0.25) + (147.02 x 0.25)

Assume that actual sales for the month total $582,030 (1,400 units), with the CM ratio and per unit amounts the same as budgeted. Actual fixed expenses are the same as budgeted, $209,000. Actual sales by product are as follows: sinks, $196,645 (490 units); mirrors, $271,040 (560 units); and vanities, $114,345 (350 units).

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

	SMITHEN COMPANY Contribution Margin Income Statement Product Sinks Mirrors Vanities Total Percentage of total ? % ? % ? % ? % Sales ? ? % ? ? % ? ? % ? ? % variable expenses ? ? % ? ? % ? ? % ? ? % contribution expenses $0 0 % $0 0 % $0 0 % 0 0 % fixed expenses ? Operating income (loss) $0

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

Let us compute the percentage of total sales.

• Percentage = Actual sales/Total sales
• Sinks =$196,645/$582,030 =34%
• Mirrors = $271,040/$582,030 =46%
• Vanities =$114,345/$582,030 =20%

​​​​​​​Let us compute the variable expenses.

• Variable expenses= Sales × cost ratio
• Sinks = $196,645 ×30%= $58,994.
• Mirrors =$ 271,040 ×80%=$216,832.
• Vanities=$114,345×55% =$62,890.

Let us compute the contribution margin

• Contribution margin = Sales- variable expenses
• Sinks =$196,645-$58,994 =$137,651.
• Mirrors =$271,040-$216,832 =$ 54,208
• Vanities= $114,345-$62,890=$51,455

​​​​​​

​​​​​Contribution margin income statement.

	Sinks	%	Mirrors	%	Vanities	%	Total	%
Percentage of total		34%		46%		20%		100%
Sales	$196,645	100%	$271,040	100%	$114,345	100%	$582,030	100%
Variable expenses	$58,994	30%	$216,832	80%	$62,890	55%	$338,716	58%
Contribution expenses	$137,651	70%	$54,208	20%	$51,455	45%	$243,314	42%
Contribution margin per unit	$280.9		$96.8		$147
Fixed expenses							$209,000
Operating income (loss)							$34,314

2. Break-even point in sales dollars = Fixed costs / Weighted average contribution margin ratio

= $209,000/0.42

=$497,619.

3. Calculation of Break even point in unit sales.

weighted average contribution margin per unit= (Contribution margin per unit × sales mix)

Sinks = $208.9×34% =71.026

Mirrors =$96.8×46%=44.528

Vanities=$147×20% =$29.4

Total =$144.954 ($145).

Break even point in unit sales = Fixed cost/ weighted average contribution margin per unit

=$209,000/$145

=1,441 units.

____×____

All the best

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