Question

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P22-20 Compute a CVP income statement, compute break even poist, contribution margin ratio, margin of safety rate and soles for tarRetnet income All Frute Company bottles and distribuses Frute Ade, a fruit drink. The beverage is sald for 50 cents per 16-ounce bottle to retailers who charge customers 70 cents per bottle. For the year 2004, management estimates the following revenues and costs Sales 2300,000 Direct materials 360,000 Direct labor 450,000 Manufacturing overhead Manufacturing overhead 270,000 Vanable 80,000 xed 80,000 Varie 250,000 Fixed 40,000 Variable 150,000 Fixed Selling expenses Selling espenses Administrative expenses Administrative expenses Instructions (a) Prepare a CVP income statement for 234 based on management's estimates. (Showr column for total ameunts only) (b) Compute the break-even point in (1) units and (2) dollars g Compute the contribution margie ratio and the margin of safety satio. (Round to nearest fll percent) (d) Datermine the sales dollars required to eam net income of $624,000. NOTE: Enter a number in cells requesting a value; enter elher a number or a formula in cells with a "?" ALL FRUTE COMPANY CVP inceme Statement (Estimated) For the Year Ending December 3. 2014 Value Sales Revenue vanable Expenses Cest of Goods Sold value Value Selling Expenses Administative Expenses Total Vanable Expenses Contribution Margin Foed Expenses Value Cost of Goods Sold Value Selling Expenses Administative Cxpenaes Value Total fixed Expenses Nat incame value unit Selling Price unit Variable Costs Contribution Margin per unit Fxed Costs Contribution Margin per unit Break-even point junts) Break-even point in units unit selling price Break-even point (dollars value OR Fxed Costs Contribution Margn Ratio Contribution mangin per unit? unit seiling price value Break-even point (dollars) Contrbution Mapn Ratio Contribution margin per unit unit selling price value Margin of Safety Ratio Value Sales Break-even point (dollars) xcess aver break-even Sales Total fised espenses value Desired net income Contribution margin ratio Requited sales

Answer 1

(a)

ALL FRUTE COMPANY
CVP Income Statement (Estimated)
For the Year Ending December 31, 2014
Sales revenue		2500000
Variable expenses
Cost of goods sold ($360000 + 450000 + 270000)	1080000
Selling expenses	80000
Administrative expenses	40000
Total variable expenses		1200000
Contribution margin ($2500000 - $1200000)		1300000
Fixed expenses
Cost of goods sold	380000
Selling expenses	250000
Administrative expenses	150000
Total fixed expenses		780000
Net income ($1300000 - $780000)		520000

(b)(1)

Unit selling price	0.50
Unit variable costs	0.24
Contribution margin per unit ($0.50 - $0.24)	0.26
Fixed costs	780000
Contribution margin per unit	0.26
Break-even point (units) ($780000/$0.26)	3000000

Number of units sold = Total sales revenue/Unit selling price = $2500000/$0.50 = 5000000

Unit variable cost = Total variable expenses/Number of units sold = $1200000/5000000 = $0.24

(b)(2)

Break-even point in units	3000000
Unit selling price	0.50
Break-even point (dollars) (3000000 x $0.50)	1500000

OR

Fixed costs		780000
Contribution margin ratio
Contribution margin per unit	0.26
Unit selling price ($0.26/$0.50)	0.50	0.52
Break-even point (dollars) ($780000/0.52)		1500000

(c)

Contribution margin ratio
Contribution margin per unit	0.26
Unit selling price ($0.26/$0.50)	0.50	0.52
Margin of safety ratio
Sales	2500000
Break-even point (dollars)	1500000
Excess over break-even ($2500000 - $1500000)	1000000
Sales ($1000000/$2500000)	2500000	0.40

(d)

Total fixed expenses	780000
Desired net income	624000	1404000
Contribution margin ratio		0.52
Required sales ($1404000/0.52)		2700000