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:
Break-even point in sales dollars = Fixed expenses = $223,600 = $430,000
Overall CM ratio 0.52
Break-even point in unit sales:
Total Fixed expenses = $223,600 = 1,720 units
Weighted-average CM per unit $130*
*($168 × 0.50) + ($40 × 0.25) + ($144 × 0.25)
As shown by these data, operating income is budgeted at $36,400 for the month, break-even sales dollars at $430,000, and break-even unit sales at 1,720. Assume that actual sales for the month total $504,000 (2,100 units), with the CM ratio and per unit amounts the same as budgeted. Actual fixed expenses are the same as budgeted, $223,600. Actual sales by product are as follows: sinks, $126,000 (525 units); mirrors, $210,000 (1,050 units); and vanities, $168,000 (525 units).
1. Prepare a contribution format income statement for the month based on actual sales data. Present the income statement in the format shown above.
2. Compute the break-even point in sales dollars for the month, based on the actual data.
3. Calculate the break-even point in unit sales for the month, based on the actual data.
4. Considering the fact that the company exceeded its $500,000 sales budget for the month, the president is shocked at the results shown on your income statement in (1) above. Prepare a brief memo for the president explaining why both the operating results and the break-even point in sales dollars are different from what was budgeted.

  • CreatedJuly 08, 2015
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