Question

Cullumber 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 2020, management estimates the following revenues and costs. Sales $1,750,000 Selling expenses—variable $113,000 Direct materials 460,000 Selling expenses—fixed 50,000 Direct labor 390,000 Administrative expenses—variable 27,000 Manufacturing overhead—variable 410,000 Administrative expenses—fixed 77,500 Manufacturing overhead—fixed 100,000 Prepare a CVP income statement for 2020 based on management’s estimates. CULLUMBER COMPANY CVP Income Statement (Estimated) For the Year Ending December 31, 2020

Variable cost per bottle $

Contribution margin ratio % Margin of safety ratio %

Required sales dollars $

Answer 1

1.

CVP income statement:

Cullumber Company
CVP Income Statement (Estimated)
For the Year Ending December 31, 2020
Sales		1750000
Less: Variable expenses:
Cost of goods sold (460000+390000+410000)	-1260000
Selling expenses	-113000
Administrative expenses	-27000
Total variable expenses		-1400000
Contribution margin		350000
Less: Fixed expenses:
Cost of goods sold	-100000
Selling expenses	-50000
Administrative expenses	-77500
Total fixed expenses		-227500
Net income		122500

.

2.

Variable cost ratio = variable cost / sales * 100

Variable cost ratio = 1400000 / 1750000 * 100

Variable cost ratio = 80%

.

Variable cost per bottles = 0.50 * 0.80

Variable cost per bottles = $0.40 per bottle

.

3.

Contribution margin ratio = contribution margin / sales * 100

Contribution margin ratio = 350000 / 1750000 * 100

Contribution margin ratio = 20%

.

4.

break even sales = fixed cost / contribution margin ratio

break even sales = 227500 / 20%

break even sales = $1137500

.

Margin of safety ratio = sales revenue - breakeven sales / sales revenue

Margin of safety ratio = 1750000 - 1137500 / 1750000

Margin of safety ratio = 35%

.

Note: only 4 parts can be attempted at once. Post remaining question separately.