September 18, 2013
TO: President of Smithen Company
FROM:
DATE: September 18, 2013
SUBJECT: Sales data

Attached is the Income Statement you required for this month. I have also included the sales figure that must be met to break-even.
Although, the sales budget of $500,000 was indeed met, the total operating income of $36,400 was not. A loss of $8,600 was incurred. This was due to the change of products that were sold during the month. Sinks have the highest contribution margin (at 70%), but because the sales of sinks sold was $80,000 less than projected, this caused the overall contribution margin to shrink. It was projected that sinks would be 48% of sales, but ended up only being 32%. The actual sales of mirrors doubled, from the projected $100,000 to $200,000, but their variable expenses are also the highest (at 80%) while carrying the lowest contribution margin of only 20%. Vanities sold in the period totaled $140,000 instead of the projected $160,000, which equated to a %5 change in the percentage of sales totals.
The break-even point (in sales dollars) is $520,000. This amount is the amount that needs to be sold in order to cover the fixed costs at a contribution margin percent of 43%. Because it was forecasted that that contribution margin percent would be 52%, the break-even point was thought to be a much lower dollar amount ($430,000). This occurred due to the actual amount of products sold.
Therefore, because of the mix of sales that transpired this month, the overall contribution margin percent was 43% instead of the projected 52%, which caused the overall contribution margin dollar amount to be reduced to $215,000 from the projected $260,000, causing a loss of $8600.
To increase overall contribution margin (percentage and dollar amounts), and thus increase operating income, products that have higher contribution margins need