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 75 cents per bottle. For the year 2017, management estimates the following revenues and costs.

Part A: Calculate variable cost per bottle.

Variable cost per bottle $____________

Part B: Compute the contribution margin ratio and the margin of safety ratio.

Contribution Margin Ratio ___________%

Margin of Safety Ratio __________ %

Part C: Determine the sales dollars required to earn net income of $180,000.

Required Sales Dollars $_________

Sales Direct materials Direct labor Manufacturing overhead-variable Manufacturing overhead-fixed $1,800,000 Sg expenses-variable 430,000 Selling expenses-fixed 360,000 Administrative expenses-variable 380,000 Administrative expenses-fixed 280,000 $70,000 65,000 20,000 60,000

Explanation / Answer

A. Variable cost per botle is $0.35

B. Contribution margin ratio = 30%

Contribution margin per bottle = Selling price per bottle - Variable cost per bottle = $0.50 - $0.35 = $0.15

Contribution margin ratio = Contribution margin per bottle / Selling price per bottle = $0.15 / $0.50 = 30%   

C. Sales dollars required to earn a net income of $180,000 = $1,950,000

Desired net income = $180,000

Fixed expenses =$ 405,000

Total =$585,000

Sales dollars required = (Fixed expenses + Desired net income) / Contribution margin ratio

= $585,000 / 30% = $1,950,000

Workings:

Sales units 3600000 Sales 1800000           0.50 Variable costs Direct material 430000           0.12 Direct labor 360000           0.10 Variable manufacturing overheads 380000           0.11 Variable selling expenses 70000           0.02 Variable administrative expenses 20000           0.01 Total variable costs 1260000           0.35 Contribution margin 540000           0.15 Fixed expenses: Fixed manufacturing overheads 280000           0.08 Fixed selling expenses 65000           0.02 Fixed administrative expenses 60000           0.02 Total fixed expenses 405000           0.11 Net operating income 135000           0.04 Total sales 1800000 Selling price $0.50 Number of units sold 3600000

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