P6-2A Utech Company bottles and distributes Livit, a diet soft drink. The beverage is sold for 50 cents

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.

 

Prepare a CVP income statement, compute break-even point, contribution margin ratio, margin of safety ratio, and sales for target net income.

 

Net sales             $1,800,000

Direct materials                     430,000

Direct labor              352,000

Manufacturing overhead—variable              316,000

Manufacturing overhead—fixed                   283,000

Selling expenses—variable               $70,000

Selling expenses—fixed                      65,000

Administrative expenses—variable                20,000

Administrative expenses—fixed                      60,000

 

Instructions:

 

 (a) Prepare a CVP income statement for 2008 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. (Round to full percents.)

 (d) Determine the sales dollars required to earn net income of $238,000.