Question

Problem 11-2 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. $1,800,000 $70,000 Sales Selling expenses-variable Direct materials 430,000 Selling expenses-fixed 65,000 Direct labor Administrative expenses-variable 360,000 20,000 Manufacturing overhead-variable 380,000 Administrative expenses-fixed 60,000 Manufacturing overhead-fixed 280,000 Your answer is partially correct. Try again. Prepare a CVP income statement for 2017 based on management's estimates. JORGE COMPANY CVP Income Statement (Estimated) December 31, 2017 180000 Sales Variable Expenses 430000

Answer 1

JORGE COMPANY
CVP Income Statement (Estimated)
For the year ending December 31, 2017
Sales		1800000
Variable expense:
Cost of goods sold ( Direct materials + Direct labor + Variable manufacturing overhead )	1170000
Selling expense	70000
Administrative expense	20000
Total variable expense		1260000
Contribution margin		540000
Fixed expense:
Cost of goods sold ( Fixed manufacturing overhead )	280000
Selling expense	65000
Administrative expense	60000
Total fixed expense		405000
Net income / (loss)		135000

Number of bottles sold = Sales / Selling price per bottle = 1800000 / 0.50	3600000
Variable cost per bottle = Total variable expense / Number of bottles sold = 1260000 / 3600000	0.35
Contribution margin per unit = Contribution margin / Number of bottles sold = 540000 / 3600000	0.15
(1) Compute the breakeven point = Total fixed expenses / Contribution margin per unit = 405000 / 0.15	2700000	units
(2) Compute the breakeven point = Breakeven point in units * Selling price per unit = 2700000 * 0.50	1350000
Contribution margin ratio = Contribution margin per unit / Selling price per unit = 0.15 / 0.50	30%
Margin of safety ratio = ( Sales - Breakeven point ) / Sales = ( 1800000 - 1350000 ) / 1800000	25%
Required sales dollars = ( Required net income + Total fixed expenses ) / Contribution margin ratio = ( 180000 + 405000 ) / 25%	2340000