Assignment
Mini case- Smith Company
Smith 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:
|
|
Units
|
Percentage
|
|
Sinks
|
1,000
|
50%
|
|
Mirrors
|
500
|
25%
|
|
Vanities
|
500
|
aok
|
|
Total
|
2,000
|
100%
|
|
|
Sinks
|
Mirrors
|
Vanities
|
Total
|
|
Percentage of total sales
|
48%
|
20%
|
32%
|
100%
|
|
Sales
|
$240,000
|
100%
|
$100,000
|
100%
|
$160,000
|
100%
|
$500,000
|
100%
|
|
Variable expenses
|
72,000
|
30%
|
80.000
|
80%
|
88.000
|
55%
|
240.000
|
48%
|
|
Contribution margin
|
168.000
|
70%
|
20.000
|
20%
|
72,000
|
45%
|
260.000
|
52%
|
|
Contribution margin per unit Fixed Expenses
|
$168
|
|
$40
|
|
$144
|
|
$223,600
|
|
|
Operating income
|
|
|
|
|
|
|
$36,400
|
|
Break-even point in sales dollars: $223,600/.52= $430,000
Break-even point in unit sales: $223,600/ $130** = 1,720 units
**Weighted average CM per unit ($168x.5) + ($40x.25) + ($144x.25) = $130
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).
Required:
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 mini case report (including memo) for the president explaining why both the operating results and the break-even point in sales dollars are different from what was budgeted.