Compute the contribution margin ratio and the margin of safety ratio.
Huber Company bottles and distributes No-FIZZ, a fruit drink.The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bottle. For the year 2010, management estimates the following revenues and costs.
Net sales
$2,000,000
Selling expenses—variable
$ 80,000
Direct materials
360,000
Selling expenses—fixed
150,000
Direct labor
450,000
Administrative expenses—
Manufacturing overhead—
variable
40,000
variable
270,000
Administrative expenses—
Manufacturing overhead—
fixed
70,000
fixed
280,000
Instructions
(a) Prepare a CVP income statement for 2010 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.
(d) Determine the sales dollars required to earn net income of $390,000.