Question

Problem 5-3A (Video) Blossom 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 $1.950.000 Selling expenses-variable $67,000 Direct materials 550.000 Selling expenses-fixed 61,000 Direct labor 350,000 Administrative expenses variable 20,000 Manufacturing overhead-variable 370.000 Administrative expenses-fixed 59,250 Manufacturing overhead-fixed 260,000 Prepare a CVP Income statement for 2020 based on management's estimates. BLOSSOM COMPANY CVP Income Statement (Estimated) For the Year Ending December 31, 2020 Sales 1,950,000 Variable Expenses Cost of Goods Sold 1270000 67,000 Selling Expenses Administrative Expenses 20.000 Total Variable Expenses V 1365000 Contribution Margin 585000 Fixed Expenses Cost of Goods Sold 260,000 61.000 Selling Expenses Administrative Expenses 59.250 Total Fixed Expenses 380250 Net Income/(Loss) 204750 Calculate variable cost per bottle. (Round variable cost per bottle to 3 decimal places, e.g. 0.251.) Variable cost per bottle Compute the break-even point in (1) units and (2) dollars. (Round answers to 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 3 decimal places, 0.25 and final answers to o decimal places, 9. 259.) Contribution margin ratio Margin of safety ratio Determine the sales dollars required to earn net income of $210,000. (Round answer to decimal places.g. 1.225.) Required sales dollars $

Answer 1

Units sold:

= $1,950,000 / $0.50

= 3,900,000

Variable cost per unit:

= $1,365,000 / 3,900,000

= $0.35

Contribution margin per unit:

= $0.50 - $0.35

= $0.15

Contribution margin ratio:

= $0.15 / $0.50

= 30%

1)

Breakeven point in units:

= $380,250 / $0.15

= 2,525,000

2)

Breakeven point in dollars:

= $380,250 / 30%

= $1,267,500

Contribution margin ratio = 30% (Calculated above)

Margin of safety ratio:

= ($1,950,000 - $1,267,500) / $1,950,000

= 35%

Required sales dollars:

= ($380,250 + $210,000) / 30%

= $1,967,500