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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