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Contribution margin, break even point, margin safety ratio, fixed costs

Tyson Company bottles and distributes LO-KAL, a fruit drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bottle.

Management estimates the following revenues and costs.

Net sales $2,500,000 Selling expenses-variable $ 90,000
Direct materials 360,000 Selling expenses-fixed 200,000
Direct labor 650,000 Administrative expenses-
Manufacturing overhead- variable 30,000
variable 370,000 Administrative expenses-
Manufacturing overhead- fixed 140,000
fixed 260,000

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

Tyson Company bottles and distributes LO-KAL, a fruit drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bottle.

Management estimates the following revenues and costs.

Net sales $2,500,000 Selling expenses-variable $ 90,000
Direct materials 360,000 Selling expenses-fixed 200,000
Direct labor 650,000 Administrative expenses- variable ...

Solution Summary

This solution is comprised of a detailed explanation to compute (1) the contribution margin and (2) the fixed costs.

$2.19