Problem: Utech Company bottles and distributes Livit, 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 2008, management estimates the following revenues and costs.
Net sales $1,800,000 Selling expenses-variable $70,000
Direct materials 430,000 Selling expenses-fixed 65,000
Direct labor 352,000 Administrative expenses-variable 20,000
Manufacturing overhead-variable 316,000 Administrative expenses-fixed 60,000
Manufacturing overhead-fixed 283,000
Hint: Prepare a CVP income statement, compute break-even point, contribution margin ratio, margin of safety ratio, and sales for target net income.
Instructions:
(1) Prepare a CVP income statement for 2008 based on management's estimates.
(2) Compute the break-even point in (1) units and (2) dollars.
(3) Compute the contribution margin ratio and the margin of safety ratio. (Round to full percents.)
(4) Determine the sales dollars required to earn net income of $238,000.