Jorge Company bottles and distributes B-Lite, a diet soft drink. The beverage is

Question

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 78 cents per bottle. For the year 2014, management estimates the following revenues and costs.

Sales $1,796,100

Direct materials $318,780

Direct labor $355,690

Manufacturing overhead— variable $319,730

Manufacturing overhead-- Fixed $278,070

Selling expenses - variable $65,810

Selling expenses—fixed $61,820

Administrative expenses—variable $17,650

Administrative expenses—fixed $140,110

a) Prepare a CVP income statement for 2014 based on management’s estimates.

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 answers to 0 decimal places, e.g. 25%.)

d) Determine the sales dollars required to earn net income of $236,800. (Round answer to 0 decimal places, e.g. 1,750.)

Explanation / Answer

units sold=sales/sellimg price
=1796100/.5=3,592,200

Sales=$1,796,100
Variable cost=318780+355690+319730+65810
=$1,060,010

Contribution margin=1,796,100-1,060,010=$$736,090

Fixed cost=278070+61820=339,890
Net profit=736090-339890=$396,200

b)Brek even point iunits= fixed cost/(sp - var price)
=Variabble price per unit=1060010/3592200=0.3

Break even point=339890/(0.5-0.3)=1,699,450
break even dollars=1699450*.5=849,725

2)contribution margin ratio=(0.5-0.3)/.5=40%

Margin of safety=sales-break even dollars
=1,796,100-849,725=$946,375

3) (Net income+fixed cost)/(sp-cp) per unit
=(236800+339890)/(0.5-0.3)=$2,883,450

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