Question

P18-2A Prepare a CVP income statement, compute break-even point, contribution margin ratio, margin of safety ratio
	and sales for target net income
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				$1,800,000		Selling expenses - variable
	Direct materials				430,000		Selling expenses - fixed
	Direct labor				360,000		Administrative expenses - variable
	Manufacturing overhead- variable				380,000		Administrative expenses - fixed
	Manufacturing overhead -fixed				280,000
Instructions
(a)	Prepare a CVP income statement for 2017 based on management estimates. (show column for total amounts only.)
(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 the nearest full percent.)
(d)	Determine the sales dollars required to earn net income of $180,000.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a)	Prepare a CVP income statement for 2017 based on management estimates. (show column for total amounts only.)
	JORGE COMPANY
	CVP Income Statement (Estimated)
	For the Year Ending December 31, 2017
	Sales						$                 1,800,000.00
	Variable expenses
	Cost of goods sold				?
	Selling expenses				Value
	Administrative expenses				Value
	Total variable expenses						?
	Contribution margin						?
	Fixed expenses
	Cost of goods sold				Value
	Selling expenses				Value
	Administrative expenses				Value
	Total fixed expenses						?
	Net income						?
(b)	Compute the break-even point in (1) units and (2) dollars.
	(b)(1)	Break-even point in units
		Unit selling price			Value
		Unit variable costs			Value
		Unit contribution margin			?
		Fixed costs			Value
		Unit contribution margin			Value
		Break-even point in units			?
	(b)(2)	Break-even point in dollars
		Break-even point in units			Value
		Unit selling price			Value
		Break-even point in dollars			?
(c )	Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)
	Contribution margin ratio
	Unit contribution margin				Value
	Unit selling price				Value
	Contribution margin ratio				?
	Margin of safety ratio
	Total sales				Value
	Break-even sales				Value
	Margin of safety (dollars)				Value
	Total sales				Value
	Margin of safety ratio				Value
(d)	Determine the sales dollars required to earn net income of $180,000.
	Sales dollars required to earn target income
	Fixed costs				Value
	Target income				Value
	Total fixed cost + target income				?
	Contribution margin ratio				?
	Sales dollars required				?

Answer 1

b) variance costs = 70% of sales i.e ($ 1,260000/$180000) or ($ 0.50 times 70 %) rightarrow $ 0.35 per bottle Total fixed costs = $ 405,000 so, $ 50 x = $ 0.35 x + 405000 $ 0.15 x = $ 405000 x = 2 700000 units Break - even point in dollars Break - even point in units (A) 2, 700, 000 units unit setting price (B) $0.50 Break - even point in dollars (A times B) $ 1, 350000 \r\n contribution margin ratio unit contribution margin $ 0.15 unit selling prce $ 0.50 contribution margin ratio = $ 0.15/$ 0.50 times 100 = 30 % d) Fixed cots $ 405000 Target income $ 180000 Total fixed costs + Target income $ 585000 contribution margin ratio 0.30 sales dollars required $ 585000/0.30 = $1,950000