Question

Wildhorse Company bottles and distributes B-Lite, 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 2020, management estimates the following revenues and costs.

Sales		$1,850,000		Selling expenses—variable		$95,000
Direct materials		470,000		Selling expenses—fixed		54,000
Direct labor		340,000		Administrative expenses—variable		30,000
Manufacturing overhead—variable		360,000		Administrative expenses—fixed		109,000
Manufacturing overhead—fixed		170,000

Calculate variable cost per bottle. (Round variable cost per bottle to 3 decimal places, e.g. 0.251.)

Variable cost per bottle $_________

Compute the break-even point in (1) units and (2) dollars. (Round answers to 0 decimal places, e.g. 1,225.)

(1)		Compute the break-even point		Units ___________
(2)		Compute the break-even point		$ Break-even point in Dollars $_____

Compute the contribution margin ratio and the margin of safety ratio. (Round variable cost per bottle to 3 decimal places, e.g. 0.25 and final answers to 0 decimal places, e.g. 25%.)

Contribution margin ratio			________%
Margin of safety ratio			________%

Determine the sales dollars required to earn net income of $240,000. (Round answer to 0 decimal places, e.g. 1,225.)

Required sales dollars

$__________

Answer 1

Number of bottles sold = Sales revenue/Selling price per bottle

=1,850,000/0.5

= 3,700,000 bottles

Variable cost per bottle = (Direct material + Direct labor + Variable manufacturing overhead + Variable selling expenses + Variable admin expense)/Number of bottles sold

= (470,000+340,000+360,000+95000+30,000)/3,700,000

= $0.35 per bottle

Contribution margin per unit = Selling price per unit – variable cost per unit

= 0.75-0.5

= $0.25 per bottle

Break even units = Fixed costs/Contribution margin per unit

= (170,000+54,000+109,000)/0.25

= 1,332,000 bottles

In Dollars = 1,332,000*0.5 = $666,000

CM Ratio = CM Per unit/Selling price per unit

= 0.25/0.75

= 33.33%

Margin of safety ratio = (Sales – break even sales)/sales

= (1,850,000-666000)/1850,000

= 64%

Sales dollars required = (Net Income+Fixed costs)/CM Ratio

= (240,000+333000)/64%

= $895,312.50