Question

Brunswick Corporation sells bowling balls and has developed the following information:

       Sales price                                    $60 per unit

       Variable cost of goods sold                    $26 per unit

       Fixed cost of goods sold                       $500,000

       Variable operating expenses                    $1,000,000

       Fixed operating expenses                       $650,000

     For the year ended December 31, 2018, Brunswick Corporation produced and

     sold 100,000 bowling balls.

     Instructions-***SHOW ALL COMPUTATIONS OR NO CREDIT GIVEN****

1. Prepare a detailed CVP income statement using the contribution margin format for Brunswick Corporation for 2018.

     (b) Compute the contribution margin per unit.

     (c) Compute the contribution margin ratio.

     (d) Compute the break-even point in dollars.

     (e) Compute the margin of safety in dollars.

     (f) Compute the margin of safety ratio.

     (g) Compute the number of bowling bag to be sold to earn a target

        income of $1,800,000. (round to the nearest whole number)

Answer 1

Requirement (a) CVP income statement using the contribution margin format for Brunswick Corporation for 2018

Brunswick Corporation
Contribution Margin Income Statement for the year 2018
	Amount
Revenue	$ 6,000,000
Less: Variable Expense
Variable cost of Goods sold	$ 2,600,000
Variable operating Expenses	$ 1,000,000
Contribution	$ 2,400,000
Less: Fixed Costs
Fixed Cost of Goods sole	$     500,000
Fixed operating expenses	$     650,000
Net Income	$ 1,250,000

Requirement (b) Compute the contribution margin per unit.

Sale price per unit	$     60
Less: Variable cost of goods sold	$     26
Less: Variable operating expense = $1000000/100000	$     10
Contribution per unit	$     24

Requirement (c) Compute the contribution margin ratio.

Contribution margin ratio = contribution/sale = $24/$60 = 0.40 or 40% ( .40*100)

Requirement (d) Compute the break-even point in dollars.

Break even point in dollars = Fixed Cost / contribution Margin Percent

= $1150000/40%

= $2875000

Requirement (e) Compute the margin of safety in dollars.

Margin of safety = Total Sale - Break even sale

= $6000000-$2875000

= $3125000

Requirement (f) Compute the margin of safety ratio.

Margin of Safety ratio = Margin of safety in dollar*100/sale

= $3125000/$6000000 =0.52 or 52% Rounded off to nearest number

Requirement (g) Compute the number of bowling bag to be sold to earn a target income of $1,800,000. (round to the nearest whole number)

Required sale = (Fixed cost+target profit)/Contribution margin ratio

= ($1150000+$1800000)/40%

= $7375000

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