P18-2A Lyman Company bottles and distributes Livit, 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 2012, management estimates the following revenues and costs.
| Net sales | $1,800,000 | Selling expenses—variable | $70,000 |
| Direct materials | 430,000 | Selling expenses—fixed | 65,000 |
| Direct labor | 352,000 | Administrative expenses—variable | 20,000 |
| Manufacturing overhead—variable | 316,000 | Administrative expenses—fixed | 60,000 |
| Manufacturing overhead—fixed | 283,000 |
Instructions
(a) Prepare a CVP income statement for 2012 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. (Round to nearest full percent.)
(d) Determine the sales dollars required to earn net income of $238,000.
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