Question

Monty Company bottles and distributes B-Lite, a diet soft drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 75 cents per bottle. For the year 2017, management estimates the following revenues and costs. Sales $1,640,000 Selling expenses—variable $50,000 Direct materials 420,000 Selling expenses—fixed 70,000 Direct labor 350,000 Administrative expenses—variable 30,000 Manufacturing overhead—variable 380,000 Administrative expenses—fixed 48,000 Manufacturing overhead—fixed 208,250

1.Prepare a CVP income statement for 2017 based on management’s estimates. MONTY COMPANY CVP Income Statement (Estimated) $ $ $

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

3. Compute the contribution margin ratio and the margin of safety ratio. (Round variable cost per bottle to 3 decimal places, e.g. 0.255 and final answers to 0 decimal places, e.g. 25%.) Contribution margin ratio % Margin of safety ratio %

4. Determine the sales dollars required to earn net income of $150,000. Required sales dollars

Answer 1

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Monty Company
Answer 1
Income statement	Amount $	Note
Sales	1,640,000.00	A
Less: Variable expense
Direct materials	420,000.00
Direct labor	350,000.00
Manufacturing overhead- variable	380,000.00
Selling expenses- variable	50,000.00
Administrative expenses- variable	30,000.00
Total Variable expenses	1,230,000.00	B
Contribution margin	410,000.00	C
Less: Fixed expenses
Manufacturing overhead- fixed	208,250.00
Selling expenses- fixed	70,000.00
Administrative expenses- fixed	48,000.00
Total Fixed expenses	326,250.00	D
Net Operating income	83,750.00	E
Answer 2	Present
Sales	1,640,000.00	See A
Sell price per bottle	0.50	F
Number of bottles sold	3,280,000.00	G=F/A
Contribution margin	410,000.00	See C
Contribution margin per unit	0.125	H=C/G
Fixed expenses	326,250.00	See D
Break-even point (units)	2,610,000.00	I=D/H
Break-even point ($)	1,305,000.00	J=I*F
Answer 3
Contribution margin %	25.00%	K=C/A
Margin of safety in dollars	335,000.00	L=A-J
Margin of safety %	20.43%	M=L/A
Answer 4	Amount $
Desired net income	150,000.00
Add: Fixed costs	326,250.00	See D
Revised contribution	476,250.00	N
Contribution margin per unit	0.125	See H
Units to be sold	3,810,000.00	O=N/H
Sell price per bottle	0.50	See F
Sales ($)	1,905,000.00	P=O*F