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 $1,500,000 Selling expenses,variable $90,000 Direct materials 410,000 Selling expenses-fixed 50,000 Direct labor 330,000 Administrative expenses-variable 20,000 Manufacturing overhead-variable 350,000 Administrative expenses-fixed 40,000 Manufacturing overhead-fixed 150,000 Your answer is correct. 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 1500000 Variable Expenses Cost of Goods Sold 1090000 $ → Selling Expenses 90000 Administrative Expenses 20000 Total Variable Expenses 1200000 T- Contribution Margin 300000 Fixed Expenses Cost of Goods Sold V 150000 V Selling Expenses 50000 Administrative Expenses 40000 Total Fixed Expenses 240000 1 Net Income/(Loss) 60000 V $
Please correct the wrong answers.

Answer 1

Variable Cost per unit	40	$ per unit
Break even point in units	24,000	units
Break even point in dollars	1,200,000	$
Contribution margin ratio	20%
Margin of safety ratio	20%
Required sales dollars to earn net income of $ 150,000	1,950,000	$
Variable cost per bottle
Sales Value	1,500,000
Selling Price per bottle	50
Total bottles sold (1,500,000/50)	30,000
Total variable expenses	1,200,000
Variable cost per bottle (1,200,000/30)	40	$ per unit
Break-even Point in units
BEP in units =           Fixed Costs
Contribution per unit
Total contribution	300,000
Number of bottles or units	30,000
Contribution per unit (300,000/30,000)	10
Fixed Costs	240,000
BEP in units (240,000/10)	24,000	units
Break-even Point in dollars
BEP in units =                Fixed Costs
Contribution margin ratio
Contribution	300,000
Sales	1,500,000
Contribution margin ratio (Contribution/Sales)	20%
Fixed Costs	240,000
BEP in dollars (240,000/20%)	1,200,000	$
OR
BEP in dollars = BEP in units x Selling Price
= 24,000 units x 50
= $ 1,200,000
Contribution Margin Ratio
Contribution Margin Ratio = Contribution x 100
Sales
Contribution	300,000
Sales	1,500,000
Contribution margin ratio (Contribution/Sales)	20%
Margin of Safety Ratio
Margin of Safety Ratio = Sales - Breakeven sales	x 100
Sales
Sales	1,500,000
Breakeven Sales	1,200,000
Margin of Safety (1,500,000 - 1,200,000)	300,000
Sales	1,500,000
Margin of Safety Ratio (300,000/1,500,000)	20%
Required Sales dollars to earn a net income of $ 150,000
Required Sales dollars = Fixed Costs + Required Profit
Contribution margin ratio
Fixed costs	240,000
Required Profit	150,000
Contribution margin ratio	20%
Required Sales dollars = (240,000 + 150,000)/20%	1,950,000	$