Problem 11-2 Concord Company bottles and distributes B-Lite, a diet soft drink.

Question

Problem 11-2 Concord Company bottles and distributes B-Lite, a diet soft drink. The beverage is sold for S0 cents per 16-ounce bottle to retailers, who charge customers 75 cents per bottle. For the year 2017, management estimates the following revenues and costs Sales Direct materials Direct labor Manufacturing overhead-variable Manufacturing overhead-fixed $70,000 55,000 26,000 46,000 $1,840,000 Selling expenses-variable 440,000 Selling expenses-fixed 300,000 Administrative expenses-variable 360,000 Administrative expenses 511,500 -fxed

Explanation / Answer

Concord Company CVP Income statement(Estimated) Sales 1840000 Variable Expenses: cost of goods sold(440000+300000+360000) 1100000 Selling Expenses 70000 Administrative expenses 26000 Total Variable expenses -1196000 Contribution margin 644000 Fixed Expenses: cost of goods sold 511500 Selling Expenses 55000 Administrative expenses 46000 Total Fixed expenses -612500 Net income 31500 units sold = $1,840,000/0.5$ = 3,680,000 units contribution margin per unit = 644000/3,680,000 = $0.175 (1) Break even point in units = fixed expenses/contribution margin per unit =612500/0.175 3500000 units (2) Break even point in dollars = 3,500,000 units*$0.5 = $1,750,000 Contribution margin ratio = contribution margin/sales = 644000/1840000 = 35% margin of safety = sales-Break even sales = 1840000-1750000 = $90,000 margin of safety ratio = margin of safety/total sales = 90000/1840000 = 5% Sales required to earn net income of $54,250 = (fixed expenses+net income)/contribution margin ratio =(612500+54250)/35% =$1,905,000

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