P6-2A Tyson Company bottles and distributes LO-KAL, a fruit drink. The beverage is sold for 50 cents 16-ounce bottle to retailers, who charge customers 70 cents per bottle. Management estimates the following revenues and costs.
Net sales
|
$2,500,000
|
Direct materials
|
360,000
|
Direct labor
|
650,000
|
Manufacturing overhead - variable
|
370,000
|
Manufacturing overhead - fixed
|
260,000
|
Selling expenses – variable
|
$90,000
|
Selling expenses – fixed
|
200,000
|
Administrative expenses – variable
|
30,000
|
Administrative expenses – fixed
|
140,000
|
Instructions
(a) Compute (1) the contribution margin and (2) the fixed costs.
(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 $240,000.
Solution Preview
(a) Compute (1) the contribution margin and (2)
the fixed costs.
1) the
contribution margin and
|
Net sales
|
|
$2,500,000
|
|
Less: Variable costs
|
|
|
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Cost of goods sold
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$1,380,000*
|
|
|
Selling expenses
|
90,000
|
|
