me break- ution in of safety Target net P22-2A 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 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- Manufacturing overhead variable 20,000 variable 380,000 Administrative expenses--- Manufacturing overhead- fixed 60,000 fixed 280,000 units Instructions (a) Prepare a CVP income statement for 2017 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. P22-5A Viejol Corporation has collected the following information after its first year of sales. Sales were $1,600,000 on 100,000 units, selling expenses $250,000 (40% variable and 60% fixed), direct materials $490,000, direct labor $290,000, administrative expenses $270,000 (20% variable and 80% fixed), and manufacturing overhead $380,000 (70% vari- able and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Instructions (a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.) (b) Compute the break-even point in units and sales dollars for the current year. (c) The company has a target net income of $200,000. What is the required sales in dollars for the company to meet its target? (d) If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio? *P22-6A Jackson Company produces plastic that is used for injection-molding applica- tions such as gears for small motors. In 2016, the first year of operations, Jackson pro- duced 4,000 tons of plastic and sold 3,500 tons. In 2017, the production and sales results were exactly reversed. In each year, the selling price per ton was $2,000, variable manufac- turing costs were 15% of the sales price of units produced, variable selling expenses were 10% of the selling price of units sold, fixed manufacturing costs were $2,800,000, and fixed administrative expenses were $500,000. Instructions (a) Prepare income statements for each year using variable costing. (Use the format from Illustration 22A-5.) (b) Prepare income statements for each year using absorption costing. (Use the format from Illustration 22A-4.) (c) Reconcile the differences each year in net income under the two costing approaches. Comment on the effects of production and sales on net income under the two costing approaches. (d)
