As shown by these data, net operating income is budgeted at $36,400 for the mont

Question

As shown by these data, net operating income is budgeted at $36,400 for the month, andAs shown by these data, net operating income is budgeted at $36,400 for the month, and break-even sales at $430,000. Assume that actual sales for the month total $500,000 as planned. Actual sales by product are: sinks, $160,000; mirrors, $200,000; and vanities, $140,000. Required: 1. Prepare a contribution format income statement for the month based on actual sales data. 2. Compute the break-even point in sales dollars for the month, based on your actual data. 3. Considering the fact that the company met 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. Please show all work so i can learn how to do this.

Explanation / Answer

Answer:

Contribution margin ratio = Change in net operating income / change in sales = (36,400 - 0) / (500,000 - 430,000)

= 36,400 / 70,000 = 0.52

Variable cost ratio = 1 - 0.52 = 0.48

1)

Contribution format income statement based on actual data:

Sales 500,000

Less:Varaible costs (0.48) 240,000

Contribution margin 260,000

Less: Fixed expenses (B/f) 223,600

Net operating income (given) $36,400

2)

Break-even point in sales dollar = Fixed expenses / Contribution margin ratio

= 223,600 / 0.52

= $430,000

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