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In: Accounting

Wildhorse Company bottles and distributes B-Lite, a diet soft drink. The beverage is sold for 50...

Wildhorse 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 $108,000
Direct materials 450,000 Selling expenses—fixed 54,000
Direct labor 400,000 Administrative expenses—variable 22,000
Manufacturing overhead—variable 420,000 Administrative expenses—fixed 71,000
Manufacturing overhead—fixed 120,000
Compute the break-even point in (1) units and (2) dollars. (Round answers to 0 decimal places, e.g. 1,225.)
(1) Compute the break-even point units
(2) Compute the break-even point

$
Compute the contribution margin ratio and the margin of safety ratio. (Round variable cost per bottle to 2 decimal places, e.g. 0.25 and final answers to 0 decimal places, e.g. 25%.)
Contribution margin ratio %
Margin of safety ratio %
Determine the sales dollars required to earn net income of $240,852. (Round answer to 0 decimal places, e.g. 1,225.)
Required sales dollars

$

Solutions

Expert Solution

Answer:

1 Break even point 3,402,778 units
2 Break even point $1,701,389
3 Contribution margin 14.40%
4 Margin of safety 2.78%
5 Required sales to get $240,852 net income 3373972%

Calculations:

Current sales in units = $1,750,000 ÷ $0.50 = 3,500,000 units

Income Statement:

Income Statement
Sales $1,750,000
Variable costs:
Direct materials $450,000
Direct labor $400,000
Manufacturing overhead $420,000
Selling expenses $120,000
Administrative expenses $108,000
Total variable costs $1,498,000
Contribution margin $252,000
Fixed costs:
Manufacturing overhead $120,000
Selling expenses $54,000
Administrative expenses $71,000
Total fixed costs $245,000
Net income $7,000

Contribution margin per unit = $252,000 ÷ 3,500,000 = $0.072

1.Break even point in units = Total fixed cost ÷ Contribution margin per unit = $245,000 ÷ $0.072 = 3,402,778 units

2.Break even point in dollars = 3,402,778 units x $ 0.50 = $1,701,389

3.Contribution margin ratio = Contribution margin ÷ Sales = $252,000 ÷ $1,750,000 = 0.144 or 14.40%

4.Margin of safety = (Current Sales - Break-even sales) ÷ Current sales = ($1,750,000 - $1,701,389) ÷ $1,750,000 = 0.0278 or 2.78%

5.Sales to get $240,852 profit = (Fixed cost + Required profit ) ÷ Contribution margin ratio = ($245,000 + $240,852) ÷ 14.40% = $3,373,972

ekkarill92 answered 1 year ago
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