Question

P5-2A 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

$70,000

Direct materials

430,000

Selling expenses - fixed

65,000

Direct labor

360,000

Administrative expenses - variable

20,000

Manufacturing overhead- variable

380,000

Administrative expenses - fixed

60,000

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

Value

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

(a)	Prepare a CVP income statement for 2017 based on management estimates
	Particulars	$	$
	Sales		1800000
	Variable expenses:
	Cost of goods sold	1170000
	selling expenses	70000
	Administrative expense	20000
	Total variable expense		1260000
	Contribution Margin		540000
	Fixed Expense:
	Cost of goods sold	280000
	selling expenses	65000
	Administrative expense	60000
	Total Fixed expense		405000
	Net income		135000
B	Compute Break even point in (1) and (2)
	Variable costs :
	1260000/1800000	70% of sales
	Selling price	0.5
	Variable costs (70% 0f 0.5)	0.35
b(1)	Break even point in units
	Particulars	$
	Unit selling price	0.5
	Unit variable costs	0.35
	Unit contribution Margin	0.15
	Fixed costs	405000
	Unit contribution Margin	0.15
	Break even point in units	2700000
b(2)	Break even point in dollars
	Particulars	$
	Break even point in units	2700000
	Unit selling price	$0.50
	Break even point in dollars	1350000
C)	Compute the contribution Margin and Margin of safety ratio
	Contribution Margin Ratio
	Particulars	$
	Unit contribution Margin	$0.15
	unit selling price	$0.50
	Contribution Margin	30%
	[contribution/Sales]
	Margin of safety ratio
	Particulars	$
	Total sales	1800000
	Break even sales	1350000
	Margin of safety (dollars) [Total sales - Break even sales]	450000
	Total sales	1800000
	Margin of safety ratio [Total sales/Mos]	25%
D)	Determine the sales required to earn net income of $180,000
	Fixed cost	405000
	Target income	180000
	Total [Fixed cost + Target income]	585000
	Contrubution margin ratio	0.3
	Sales dollars required	1950000