QUESTION - Baby Food Industries manufactures and sells a highly successful line of baby food in Asia. It plans to expand the business to Europe and the company is considering to produce biscuits, cereal, and fruit juice to prevent dry and chapped skin. Budgeted sales by product for the coming month are shown below:
|
Product
|
Biscuit
|
Cereal
|
Fruit juice
|
Total
|
|
Percentage of Sales
|
20
|
52
|
28
|
100
|
|
Sales ('000)
|
$150,000
|
$390,000
|
$210,000
|
$750,000
|
|
Variable Expenses ('000)
|
108,000
|
78,000
|
84,000
|
270,000
|
|
Contribution Margin ('000)
|
42,000
|
312,000
|
126,000
|
480,000
|
|
Fixed Expenses ('000)
|
|
|
|
449,280
|
|
Net income ('000)
|
|
|
|
$30,720
|
As shown by these data, net operating income is budgeted at $30,720,000. Assume that actual total sales for the month is $750,000,000 as planned. Actual sales by product are: Biscuit, $300,000,000; Cereal, $180,000,000; and Fruit juice, $270,000,000.
Required:
a) Prepare a contribution income statement for the month based on the actual sales. Present the income statement as the format shown above.
b) Compute the break-even point in sales dollars for the month based on your actual data.
c) Considering the fact that the company met its $750,000 sales budget for the month, the president is shocked at the result shown on your income statement in (i) above. Prepare a brief memo for the president explaining why both the operating results and the breakeven point in sales dollars are different from what was budgeted.