Question

Johnson Company bottles ans distributes soft drinks. The beverage is sold for 60 cents per 16 ounce bottle to retailers who charge customers 75 cents per bottle. For the year 2020, management estimates the following revenues and costs.

Sales 1,800,000

Direct materials 510,000

Direct labor 390,000

Manufacturing overhead-variable 410,000

Manufacturing overhead-fixed 130,000

Selling expenses-variable 105,000

Selling expense-fixed 62,000

Administrative expense-variable 25,000

Administrative expense-fixed 96,000

Prepare a CVP income statement for 2020 based on management's estimates.

Then calculate variable cost per bottle

Variable cost per bottle $___________

Compute the break-even point in (1) units and (2) dollars:

(1) Compute break-even point

(2) Compute the break-even point

Compute the contribution margin ratio and the margin of safety ration:

Contribution margin ratio_________%

Margin of safety ratio____________%

Determine the sales dollars required to earn net income of $170,000

Required sales dollars $_______________

Answer 1

	Contribution Margin income statement
		Per unit cost	Total
	No. of units sold($1,800,000/$0.60)	30,00,000		units
	Net sales revenue	$0.60	$18,00,000
	Variable costs:
	Direct materials	$0.1700	$5,10,000
	Direct labor	$0.1300	$3,90,000
	Manufacturing overhead	$0.1367	$4,10,000
	Selling expenses	$0.0350	$1,05,000
	Administrative expenses	$0.0083	$25,000
	Total Variable costs	$0.4800	$14,40,000
	Contribution Margin	$0.1200	$3,60,000
	Fixed Costs:
	Manufacturing overhead		$1,30,000
	Selling expenses		$62,000
	Administrative expenses		$96,000
	Total Fixed costs		$2,88,000
	Operating income/(Loss)		$72,000
1	Contribution margin per unit(a)	$0.1200
	Total Fixed expenses(b)	$2,88,000
	Break even point(b/a)	24,00,000	units
2	Contribution margin ratio($0.12/$0.60)	20%
	Total Fixed expenses(b)	$2,88,000
	Break even sales(b/a)	$14,40,000
3	Margin of safety ratio(100-20)%	80%
4	Required Net Income	$1,70,000
	Add:Total Fixed expenses	$2,88,000
	Required Contribution margin	$4,58,000
	Contribution margin ratio	20%
	Required sales($458,000/20%)	$22,90,000