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: Percentage of total sales Sales Variable expenses Contribution margin Fixed expenses Net operating income White 48% $ 297,600 89,280 $ 208,320 100 % 30 % 70% Product Fragrant Loonzain 20% 32% $ 124,000 100% $ 198,400 100 % 99,200 80% 109,120 55 % $ 24,800 20 % $ 89,280 45 % Total 100 % $ 620,000 297,600 322,400 228,800 $ 93,600 100 % 48 % 52 % Dollar sales to break-even -- Fixed expenses CM ratio $228,800 - - $440,000 0.52 As shown by these data, net operating income is budgeted at $93,600 for the month and the estimated break-even sales is $440,000. Assume that actual sales for the month total $620,000 as planned. Actual sales by product are: White, $198,400; Fragrant, $248,000; and Loonzain, $173,600. Required: 1. Prepare a contribution format income statement for the month based on the actual sales data. 2. Compute the break-even point in dollar sales for the month based on your actual data. Menlo Company distributes a single product. The company's sales and expenses for last month follow: Total $ 306,000 214,200 91,800 77,400 $ 14,400 Per Unit $20 14 $ 6 Sales Variable expenses Contribution margin Fixed expenses Net operating income Required: 1. What is the monthly break-even point in unit sales and in dollar sales? 2. Without resorting to computations, what is the total contribution margin at the break-even point? 3-a. How many units would have to be sold each month to attain a target profit of $30,000? 3-b. Verify your answer by preparing a contribution format income statement at the target sales level. 4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. 5. What is the company's CM ratio? If sales increase by $57,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? Magic Realm, Inc., has developed a new fantasy board game. The company sold 32,400 games last year at a selling price of $67 per game. Fixed expenses associated with the game total $567,000 per year, and variable expenses are $47 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor. Required: 1-a. Prepare a contribution format income statement for the game last year. 1-b. Compute the degree of operating leverage. 2. Management is confident that the company can sell 41,796 games next year (an increase of 9,396 games, or 29%, over last year). Given this assumption: a. What is the expected percentage increase in net operating income for next year? b. What is the expected amount of net operating income for next year? (Do not prepare an income statement; use the degree of operating leverage to compute your answer.)
