Question

Culver company bottles and distributes be light a diet soft drink the beverage is sold for $0.50 per 16 oz bottle to the retailers who charge customers $0.75 per bottle for the year 2017 management estimates the following revenues and cost sales $1,840,000 direct materials $440,000 direct labor $320,000 manufacturing overhead variable $350,000 manufacturing overhead fixed $498,000 selling expenses variable $50,000 selling expenses fixed $50,000 administrative expenses variable $36,000 and administrative expenses fixed $54,000 prepare a CVP income statement for 2017 based on the management estimates ,compute the break-even point in units and in dollars, compute the contribution margin ratio and the margin of safety ratio, determine the sales dollars required to earn net income of $64,750

Answer 1

Requirement 1
Culver company
CVP income statement for 2017
Sales		18,40,000
Variable Expenses:
direct materials	4,40,000
direct labor	3,20,000
manufacturing overhead variable	3,50,000
selling expenses variable	50,000
administrative expenses variable	36,000
Total variable Expenses		11,96,000
Contribution Margin		6,44,000
Fixed Expenses:
manufacturing overhead fixed	4,98,000
selling expenses fixed	50,000
administrative expenses fixed	54,000
Total fixed Expenses		6,02,000
Net income		42,000
Requirement 2
No.of Units Sold	=1840000/0.5
	36,80,000
Contribution per unit	=644000/3680000
	0.175
CM ratio	Contribution margin/Sales *100
	=644000/1840000 X100
	= 35.00 %
Break even in unit sales	Fixed expenses/ contribution per unit
	=602000/0.175
	3440000	Units
Break even in dollar sales	Fixed expenses /CM Ratio
	=602000/35%
	=1,720,000
margin of safety percentage	(Actual sales - Break even sales)/ Actual Sales *100
	=(1840000-1720000)/1840000X100
	6.52%
sales dollars required to earn net income of $64,750
Required Contribution = 602000+64750
= 666750
Required sales = 666,750 /35 %
= $ 1,905,000