1. Review:Variable Costing Break-Even Margin of Safety

2. Facts The following income statement data were taken from the financial statements of Pillsbury Company: (in millions) Net Sales$6,190.6 Costs and Expenses: Cost of Sales$4,322.3 S, G, and A Exp1,614.5 Interest Exp97.86,034.6 Income before Income Tax$156.0

3. Facts (cont’d) Assume that the costs have been classified into the following fixed and variable components: FixedVariable Cost of Sales20%80% S, G, and A Exp40%60% Interest Exp100%

4. 1) Prepare a variable costing income statement. (in millions) Sales$6,190.6 Variable Cost of Goods Sold3,457.8 Mfg Margin$2,732.8 Var S, G, and Admn Exp968.7 Contribution Margin$1,764.1 Fixed Costs and Exp: Manufacturing$864.5 S, G, and Admn645.8 Interest Expense97.81,608.1 Income from Operations$156.0

5. 2) Determine the contribution margin ratio. CM S $1,764.1 $6,190.6 =28.5% 3) What is the percent of variable costs and expenses? 1-28.5%=71.5%

6. 4) Determine the break-even point. S=FC+VC S=$1,608.1+.715 S.285S=$1,608.1 S=$5,642.5

7. 5)Determine the margin of safety (1) in dollars and (2) as a percent. MS $ =S a -S be MS $ =$6190.6-$5,642.5 MS $ =$548.1 million MS % =MS $ S A MS % ≈9%