Problem - Your team assignment for ACCO 503 is to apply what we are learning about:
- Variable Costs
- Fixed Costs
- CVP Analysis - Contribution Margin Analysis and Contribution Margin Ratio and Break-Even Analysis
- Relevant Costs
- Flexible Budgets
Coca Cola Company produced a diet soft drink. The beverage is sold for 40 cents per 16-ounces bottle to retailers, who charge customer 50 cents per bottle. At full (100%) plant capacity, management estimates the following revenues and cost.
Net sales $1,800,000
Direct materials 400,000
Direct label 280,000
Manufacturing overhead-variable 300,000
Manufacturing overhead fixed 283,000
Selling expenses variable 80,000
Selling expenses fixed 65,000
Administrative expenses variable 20,000
Administrative expenses fixed 52,000
Instructions:
a) Prepare a CVP income statement for the year 2011 based on management estimates.
b) Compute the break-even point in unit and dollars.
c) Compute the contribution margin ratio and the margin of safety ratio
d) Determine the sales required to earn net income of $ 150,000
e) The marketing department believes that sales can be increased to $2,300,000 if an intensive advertising campaign is adopted. This campaign will add $150,000 to the fixed selling expenses. Re-evaluate parts a) through d) under this proposal. Should the campaign be adopted?
f) Relevant Costs.
g) Flexible Budgets.