JORGE COMPANY CVP Income Statement (Estimated) For the Year Ending December 31,
ID: 2540504 • Letter: J
Question
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
Requirement (last)
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
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.
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
Explanation / Answer
Solution
Calculation of
(b)Break-even point in (1) units and (2) dollars
(c)Contribution margin ratio and the margin of safety ratio
(d)Sales dollars required to earn net income of $180,000
When, sale price changed to $0.60 and fixed manufacturing cost become $300000.
(b)Break-even point in (1) units and (2) dollars
(b1) Break-even point in units
= Fixed cost / Contribution per unit*
=$425000 / $ 0.25
=17, 00,000 units
(b2)Break-even point in dollars
= Selling Price per Unit × Break-even Sales Units
=$0.60 X 17, 00,000 units
=$ 1,020,000
*=Selling price per unit – Variable cost per unit
= $ 0.60- $1260000 / 3600000
=$ 0.60 - $ 0.35
=$ 0.25
(c) Contribution margin ratio
= (Selling price per unit – Variable cost per unit)/ Selling price per unit X 100
= ($ 0.60 - $ 0.35) / 0.60 X 100
=42%
Margin of safety ratio
= (Total sales- Break-even sales)/ Total sales X 100
= ($ 2160000-$ 10, 20,000) /$ 2160000 X 100
=$ 11, 40,000 /$ 2160000 X 100
=53%
(d) Sales dollars required to earn net income of $180,000
Sales dollars required to earn target income
= (Total fixed cost + target income) /Contribution margin ratio
= ($ 425000 + $180,000) /42%
=$ 605,000/42%
=$ 1,440,476
Table showing impact of chage in selling price and fixed cost
Particular
Before Change
After Changes
When, sale price changed to $0.60 and fixed manufacturing cost become $300000.
Impact
(b)Break-even point
(1) units
27,00,000
17, 00,000
Decrease
(2) dollars
$1,350,000
$ 1,020,000
Decrease
(c)Contribution margin ratio
30%
42%
Increase
Margin of safety ratio
25%
53%
Increase
(d) Sales dollars required to earn net income of $180,000
$1,950,000
$ 1,440,476
Decrease
Particular
Before Change
After Changes
When, sale price changed to $0.60 and fixed manufacturing cost become $300000.
Impact
(b)Break-even point
(1) units
27,00,000
17, 00,000
Decrease
(2) dollars
$1,350,000
$ 1,020,000
Decrease
(c)Contribution margin ratio
30%
42%
Increase
Margin of safety ratio
25%
53%
Increase
(d) Sales dollars required to earn net income of $180,000
$1,950,000
$ 1,440,476
Decrease
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