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

$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

(b)

Compute the break-even point in (1) units and (2) dollars.

(b)(1)

Break-even point in units

Unit selling price

$0.50

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

(b)(2)

Break-even point in dollars

Break-even point in units

2,700,000

Unit selling price

$0.50

Break-even point in dollars

$1,350,000

(c )

Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)

Contribution margin ratio

Unit contribution margin

$0.15

Unit selling price

$0.50

Contribution margin ratio

30%

Margin of safety ratio

Total sales

$1,800,000

Break-even sales

Value

Margin of safety (dollars)

900,000

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

?

After you have completed P5-2A, consider the following additional question

1.

Assume that the unit selling price per bottle changed to $0.60 each, and fixed manufacturing costs

increased to $300,000. Show impact of these changes on calculations.