P5-2B All Frute Company bottles and distributes Frute Ade, a fruit drink. The beverage is sold for $0.50 per 16-ounce bottle to retailers, who charge customers $0.70 per bottle. For the year 2014, management estimates the following revenues and costs:
|
Net sales |
$2,500,000 |
Selling expenses – Variable |
$80,000 |
|
Direct materials |
360,000 |
Selling expenses – Fixed |
250,000 |
|
Direct labor |
450,000 |
Administrative expenses – Variable |
40,000 |
|
Manufacturing overhead – Variable |
270,000 |
Administrative expenses – Fixed |
150,000 |
|
Manufacturing overhead – Fixed |
380,000 |
||
Instructions:
(a) Prepare a CVP income statement for 2014 based on management’s estimates.
(b) Compute the break-even point in (1) units and (2) dollars.
(c) Compute the contribution margin ratio and the margin of safety ratio.
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