Chapter 5, Problem 21P

PROBLEM 5-21 Sales Mix; Multiproduct Break-Even Analysis LO5-9

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:

As shown by these data, net operating income is budgeted at $30,720 for the month and the estimated break-even sales is $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:

1. Prepare a contribution format income statement for the month based on the actual sales data. Present the income statement in the format shown above.
2. Compute the break-even point in dollar sales for the month based on your actual data.
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. Prepare a brief memo for the president explaining why the net operating income (loss) and the break-even point in dollar sales are different from what was budgeted.