P18-2A Prepare a CVP income statement, compute break-even point, contribution ma
ID: 2537494 • Letter: P
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P18-2A 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 ? After you have completed P18-2A, 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. P18-2A 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 ? After you have completed P18-2A, 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.Explanation / Answer
Answer
JORGE COMPANY
CVP Income Statement (Estimated)
For the Year Ending December 31, 2017
A
Sales
$1800000
Variable expenses
Cost of goods sold
1170000
Selling expenses
70000
Administrative expenses
20000
B
Total variable expenses
$1260000
C=A-B
Contribution margin
$540000
Fixed expenses
Cost of goods sold
280000
Selling expenses
65000
Administrative expenses
60000
D
Total fixed expenses
$405000
E=C-D
Net income
$135000
(b)
Compute the break-even point in (1) units and (2) dollars.
(b)(1)
Break-even point in units
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
Break-even point in units
2700000
Unit selling price
$0.5
Break-even point in dollars
$1350000
(c )
Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)
Contribution margin ratio
A
Unit contribution margin
$0.15
B
Unit selling price
$0.5
C=A/B x 100
Contribution margin ratio
30%
Margin of safety ratio
A
Total sales
1800000
B
Break-even sales
1350000
C=A-B
Margin of safety (dollars)
450000
A
Total sales
1800000
D=C/A
Margin of safety ratio
25%
(d)
Determine the sales dollars required to earn net income of $180,000.
Sales dollars required to earn target income
Fixed costs
$405000
Target income
$180000
A
Total fixed cost + target income
$585000
B
Contribution margin ratio
30%
C=A/B
Sales dollars required
$1950000
If sale price changed to $0.6 and fixed manufacturing cost become $300000, then
Sales
[3600000 units x 0.6]
$2160000
Variable expenses
Cost of goods sold
1170000
Selling expenses
70000
Administrative expenses
20000
Total variable expenses
$1260000
Contribution margin
$900000
Fixed expenses
Cost of goods sold
300000
Selling expenses
65000
Administrative expenses
60000
Total fixed expenses
$425000
Net income
$475000
JORGE COMPANY
CVP Income Statement (Estimated)
For the Year Ending December 31, 2017
A
Sales
$1800000
Variable expenses
Cost of goods sold
1170000
Selling expenses
70000
Administrative expenses
20000
B
Total variable expenses
$1260000
C=A-B
Contribution margin
$540000
Fixed expenses
Cost of goods sold
280000
Selling expenses
65000
Administrative expenses
60000
D
Total fixed expenses
$405000
E=C-D
Net income
$135000
(b)
Compute the break-even point in (1) units and (2) dollars.
(b)(1)
Break-even point in units
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
Break-even point in units
2700000
Unit selling price
$0.5
Break-even point in dollars
$1350000
(c )
Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)
Contribution margin ratio
A
Unit contribution margin
$0.15
B
Unit selling price
$0.5
C=A/B x 100
Contribution margin ratio
30%
Margin of safety ratio
A
Total sales
1800000
B
Break-even sales
1350000
C=A-B
Margin of safety (dollars)
450000
A
Total sales
1800000
D=C/A
Margin of safety ratio
25%
(d)
Determine the sales dollars required to earn net income of $180,000.
Sales dollars required to earn target income
Fixed costs
$405000
Target income
$180000
A
Total fixed cost + target income
$585000
B
Contribution margin ratio
30%
C=A/B
Sales dollars required
$1950000
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