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 2014, management estimates the following revenues and
costs.
Sales 1,800,000 Selling Expense V 70,000
Direct Material 430,000 Selling Expense F 65,000
Direct Labor 360,000 Administrative Exp V 20,000
Manufacturing OH. V. 380,000 Administrative Exp F 60,000
Manufacturing OH. F. 280,000
.:.
Instructions
(a)
Prepare a CVP income statement for 2014 based on management’s 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
nearest full percent.)
(d)
Determine the sales dollars required to earn net income of $180,000.
(a) JORGE COMPANY
CVP
Income Statement (Estimated)
For
the Year Ending December 31, 2014
Sales..................................................................................... $1,800,000
Variable
expenses
Cost
of goods sold.............................. $1,170,000*
Selling
expenses......................................... 70,000
Administrative
expenses........................ 20,000
Total
variable expenses................................
1,260,000
Contribution
margin........................................................... 540,000
Fixed expenses
Cost
of goods sold................................... 280,000
Selling
expenses....................................... 65,000
Administrative
expenses....................... 60,000
Total
fixed expenses......................................
405,000
Net income.......................................................................... $ 135,000
*Direct
materials $430,000 + direct labor $360,000 + variable manufacturing
overhead $380,000.
(b) Variable costs = 70% of sales ($1,260,000 ÷
$1,800,000) or $.35 per bottle ($.50 X 70%). Total fixed costs = $405,000.
1. $.50X = $.35X + $405,000
$.15X
= $405,000
X = 2,700,000 units
2. 2,700,000 X $.50 = $1,350,000
(c) Contribution
margin ratio = ($.50 – $.35) ÷ $.50
= 30% (or 1 – .70)
Margin of
safety ratio = ($1,800,000 – $1,350,000) ÷ $1,800,000
= 25%
(d) Required sales
X = 405,000+180,000/0.30 = $1,950,000
