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: Percentage of total sales Sales Variable expenses Contribution margin Fixed expenses Net operating income White 48 % $ 326,400 97,920 $ 228,480 Product Fragrant Loonzain 20 % 32 % 100 % $ 136,000 100 % $ 217,600 100 % 30 % 108,800 80% 119,680 55 % 70 % $ 27, 200 20 % $ 97,920 45 % Total 100 $ 680,000 326,400 353,600 228,800 $ 124,800 100% 48 % 52 % Dollar sales to break-even Fixed expenses CM ratio $228,800 0.52 = $440,000 As shown by these data, net operating income is budgeted at $124,800 for the month and the estimated break-even sales is $440,000. Assume that actual sales for the month total $680,000 as planned. Actual sales by product are: White, $217,600; Fragrant, $272,000; and Loonzain, $190,400. 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

Gold Star Rice, Ltd.
Contribution Income Statement
	White			Fragrant			Loonzain			Total
Percentage of total sales		32%			40%			28%		100%
Sales	$ 217,600	100	%	$ 272,000	100	%	$ 190,400	100	%	$ 680,000	100%
Less: Variable expenses	($ 97,920)	30	%	($ 108,800)	80	%	($ 119,680)	55	%	($ 326,400)	48%
Contribution margin	$ 119,680	70	%	$ 163,200	20	%	$ 70,720	45	%	$ 353,600	52%
Less: Fixed expenses										$ 228,800
Net operating income										$ 124,800

Break-even point in dollar sales

$ 440,000

Calculations:

Break-even point in dollar sales = Fixed expenses ÷ CM ratio

= $228,800 ÷ 0.52

= $440,000