Question

Ivanhoe 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		$1,650,000		Selling expenses—variable		$76,500
Direct materials		460,000		Selling expenses—fixed		51,000
Direct labor		330,000		Administrative expenses—variable		21,000
Manufacturing overhead—variable		350,000		Administrative expenses—fixed		99,000
Manufacturing overhead—fixed		180,000

Part 1

Partially correct answer iconYour answer is partially correct.

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

IVANHOE COMPANY CVP Income Statement (Estimated) For the Year Ending December 31, 2020
select an income statement itemAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit				$enter a dollar amount
select an opening name for section oneAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit
select an income statement itemAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit		$enter a dollar amount
select an income statement itemAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit		enter a dollar amount
select an income statement itemAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit		enter a dollar amount
select a closing name for section oneAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit				enter a total amount for section one
select a summarirzing line for the first partAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit				enter a total amount for the first part
select an opening name for section twoAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit
select an income statement itemAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit		enter a dollar amount
select an income statement itemAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit		enter a dollar amount
select an income statement itemAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit		enter a dollar amount
select a closing name for section twoAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit				enter a total amount for section two
select a closing name for this statementAdministrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable ExpensesGross Profit				$enter a total net income or loss amount

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Part 2

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

Calculate variable cost per bottle. (Round variable cost per bottle to 3 decimal places, e.g. 0.251.)

Variable cost per bottle

$enter Variable cost per bottle in dollars rounded to 3 decimal places

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Part 3

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

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		enter the break-even point in units	units
(2)		Compute the break-even point		$enter the break-even point in dollars

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Part 4

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

Compute the contribution margin ratio and the margin of safety ratio. (Round variable cost per bottle to 3 decimal places, e.g. 0.25 and final answers to 0 decimal places, e.g. 25%.)

Contribution margin ratio		enter the contribution margin ratio in percentages rounded to 0 decimal places	%
Margin of safety ratio		enter the Margin of safety ratio in percentages rounded to 0 decimal places	%

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Part 5

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

Determine the sales dollars required to earn net income of $240,000. (Round answer to 0 decimal places, e.g. 1,225.)

Required sales dollars

$enter the Required sales dollars

Answer 1

Sales Revenue		$    16,50,000
Less Variable Expenses
Direct Material	$         4,60,000
Direct Labor	$         3,30,000
Manufacturing Overhead	$         3,50,000
Selling Expenses	$            76,500
Administrative expenses	$            21,000
Total Variable Expenses		$    12,37,500
Contribution Margin		$      4,12,500
Less Fixed Expenses
Manufacturing Overhead	$         1,80,000
Selling Expenses	$            51,000
Administrative expenses	$            99,000
Total Fixed Expenses		$      3,30,000
Operating Income		$         82,500

No of units sold = $1650000 / $0.50 = 3300000

Variable Cost per unit = $1237500 / 3300000 = $0.375 per unit

Contribution Margin per unit = $0.50 - $0.375 = $0.125

Break Even Point (Units) = Fixed Cost / Contribution Margin per unit
= $330000 / $0.125 = 2640000 units

Break Even Point (Dollars) = 2640000 x $0.50 = $1320000

Contribution Margin Ratio = Contribution Margin / Sales x 100
= $412500 / $1650000 x 100 = 25%

Margin of Safety = Sales - Break Even
= $1650000 - $1320000 = $330000

Margin of Safety Ratio = Margin of safety / Sales x 100
= $330000 / $1650000 x 100 = 20%

Sales Dollars to earn desired income = (Fixed Cost + Desired Income) / Contribution Margin ratio
= ($330000 + $240000) / 25% = $2280000