Ms. Reem then welcomed you and discussed with you your new job\'s duties and res

Question

Ms. Reem then welcomed you and discussed with you your new job's duties and responsibility. You noticed that your job duties include doing some financial as well as managerial accounting functions, which involve preparing cost-volume- analysis report, detailed financial statements analysis by the end of each year, and providing recommendations on the firm's solvency, liquidity and profitability. Ms. Reem then presented to you some information about production and sales figures and asked you to prepare a detailed report to help her in planning the target level of profitability and assess the current financial figures of the firm. Dutche Hutche Inc. bottles and distributes Kido, a baby food formula. The bottle is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 79 cents per bottle. For the year 2016, Ms. Reem estimates the following revenues and costs for year 2017

Explanation / Answer

A) CVP Income statement

a computation of cost of goods sold

B) Break even point in units and dollars

In Units:

Unit Selling price 0.50

Unit variable cost 0.34 (0.50*67%) i.e (1203186/1795800 = 67%)

Unit contribution margin 0.16

fixed cost 395225

Unit contribution margin 0.16

BEP in unit 2470156

In dollars

BEP in unit 2470156

Unit Selling price 0.50

Break even point in dollars 1235078

C) Contribution margin ratio

Unit contribution margin 0.16

Unit selling price 0.50

Contribution margin ratio 32%

Margin of safety ratio

Total sales 1795800

BEP Sales 1235078

Margin of safety 560722

Total sales 1795800

Margin of safety ratio 31%

i.e MOS Ratio = (Actual sales - BEP Sales)/Actual sales*100

D) Sales dollars required to earn target income

Fixed cost   395225

Target income 237400

Total fixed cost+target income 632625

Contribution margin ratio 32%

Sales dollar required $202440

Sales 1795800 Variable Expenses: cost of goods sold 1114076a selling expenses 66150 Administrative expenses 22960 Total variable expenses (1203186) Contribution margin 592614 Fixed expenses cost of goods sold 280930 selling expenses 68940 Administrative expenses 45355 Total fixed expenses (395225) Net income 197389

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