Question

Jorge Company bottles and distributes B-Lite, 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 2017, management estimates the following revenues and costs.

Problem 22-2A Jorge Company bottles and distributes B-Lite, 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 2017, management estimates the following revenues and costs. Sales Direct materials Direct labor Manufacturing overhead-variable Manufacturing overhead-fixed $1,840,000 440,000 320,000 350,000 498,000 Selling expenses-variable Selling expenses-fixed Administrative expenses-variable Administrative expenses-fixed $50,000 50,000 36,000 54,000 Prepare a CVP income statement for 2017 based on management's estimates. JORGE COMPANY CVP Income Statement (Estimated) For the Year Ending December 31, 2017 Sales 1,840,000 Variable Expenses Cost of Goods Sold 1,110,000 Selling Expenses 50,000 Administrative Expenses 36,000 Total Variable Expenses 1,196,000 Contribution Margin 644,000

I feel like I was doing good on this problem and then I got stuck

Answer 1

1.

Jorge Company CVP Income Statement For The Year Ending December 31, 2017
Sales		$1,840,000
Variable expenses:
Cost of goods sold (440,000+320,000+350,000)	$1,110,000
Selling expenses	50,000
Administrative expenses	36,000
Total variable expenses		(1,196,000)
Contribution margin		644,000
Fixed expenses:
Cost of goods sold	498,000
Selling expenses	50,000
Administrative expenses	54,000
Total fixed expenses		(602,000)
Net income/(Loss)		$42,000

2.

Number of bottles sold = $1,840,000/$0.50 = 3,680,000 bottles

Variable cost per bottle = $1,196,000/3,680,000 = $0.325

3.

Break even point in units = Fixed costs / Contribution margin per unit

Break even point in units = $602,000 /0.175 (0.50-0.325) = 3,440,000 units

Break even point in dollars = Fixed costs / Contribution margin ratio

Break even point in dollars = $602,000 /35% (644000/1,840,000*100) = $1,720,000

4.

Contribution margin ratio = Contribution margin / Sales * 100

Contribution margin ratio = $644,000 / 1,840,000 * 100 = 35%

Margin of safety ratio = Sales - Break even sales / Sales * 100

Margin of safety ratio = $1,840,000 - 1,720,000 / $1,840,000 * 100 = 6.622% or 7%

5.

Required sales dollars = Fixed costs + Desired net income / Contribution margin ratio

Required sales dollars = $602,000 + 64,750 / 35% = $1,905,000