3. Memo to the president:
Although the company met its sales budget of B750,000 for the month,
the mix of products changed substantially from that budgeted. This is
the reason the budgeted net operating income was not met, and the
reason the break-even sales were greater than budgeted. The com-
pany’s sales mix was planned at 20% White, 52% Fragrant, and 28%
Loonzain. The actual sales mix was 40% White, 24% Fragrant, and 36%
Loonzain.
As shown by these data, sales shifted away from Fragrant Rice, which
provides our greatest contribution per dollar of sales, and shifted toward
White Rice, which provides our least contribution per dollar of sales. Al-
though the company met its budgeted level of sales, these sales pro-
vided considerably less contribution margin than we had planned, with a
resulting decrease in net operating income. Notice from the attached
statements that the company’s overall CM ratio was only 52%, as com-
pared to a planned CM ratio of 64%. This also explains why the break-
even point was higher than planned. With less average contribution
margin per dollar of sales, a greater level of sales had to be achieved to
provide sufficient contribution margin to cover fixed costs.
Problem 6-22 (45 minutes)
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