Question

Problem 18-2A 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 2014, 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

Answer 1

1) CVP income statement

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

2)

Break-even point in units

Unit selling price 0.5

Unit variable costs 0.35

Unit contribution margin 0.15

Fixed costs 405,000

Unit contribution margin 0.15

Break-even point in units 2,700,000

Break-even point in dollars

Break-even point in units 2,700,000

Unit selling price 0.5

Break-even point in $ 1,350,000

3) CM ratio

Unit contribution margin $0.15

Unit selling price $0.50

CM ratio 30%

MOS ratio

Total sales $1,800,000

Break-even sales $1,350,000

MOS($) $450,000

Total sales $1,800,000

MOS ratio 25%

4)

Sales dollars required to earn target income

Fixed costs $405,000

Target income $180,000

Total fixed cost + target income $585,000

CM ratio 30%

Sales $ required $1,950,000