Prepare a CVP income statement for 2014 based on management’s estimates. Calcula
ID: 2417183 • Letter: P
Question
Prepare a CVP income statement for 2014 based on management’s estimates.
Calculate variable cost per bottle.
Compute the break-even point in (1) units and (2) dollars
Compute the contribution margin ratio and the margin of safety ratio.
Determine the sales dollars required to earn net income of $ 243,300
Jorge Company bottles and distributes B-Lite, a diet soft drink. The beverage is sold for 60 cents per 16-ounce bottle to retailers, who charge customers 77 cents per bottle. For the year 2014, management estimates the following revenues and costs.Sales $ 1,807,900 Selling expenses—variable $ 65,700 Direct materials 427,900 Selling expenses—fixed 65,300 Direct labor 355,300 Administrative expenses—variable 31,014 Manufacturing overhead—variable 313,300 Administrative expenses—fixed 62,000 Manufacturing overhead—fixed 286,600
Explanation / Answer
CVP Income statement for 2014
Particulars Amount
Sales 1,807,900
Less: Variable costs
Direct material 427,900
Direct Labor 355,300
Manufacturing overheads 313,300
Selling expenses 65,700
Administrative expenses 31,014 (1,193,214 )
Less: Fixed costs:
Manufacturing overheads 286,600
Selling expenses 65,300
Administrative expenses 62,000 ( 413,900)
Net Profit 200,786
Here, Number of bottles = 1807900/0.60 = 3,013,167 bottles
2. Variable cost per unit = Total variable cost/ Total units sold= 1,193,214 / 3013167 = 39.6 cents per unit
3. Break even point in units = Total fixed costs / Contribution per unit
= 413900 / [0.60-0.396 ]
= 2,028,922 units
Break even point in dollars = Break even units * selling price per unit
= 2,028,922 * 0.60
= $ 1,217,353
4. Contribution margin ratio = Contribution/Sales * 100 = {[1807900 - 1193214] / 1807900} *100
= 34%
Margin of safety ratio = Total sales(units) - Break even sales = [3013167 - 2028922 ] / 3013167 = 32.66%
5. Sales dollars require to earn a net income of $243,300:
Here Margin of safety sales= 243,300/ 34% = $715,588
Break even sales, we know = $ 1,217,353
Total sales = Break even sales + margin of safety sales
= 1,217,353+ 715,588
= $ 1,932,941
Check: Net Income= contribution - fixed costs = [1932941 * 34% ]- 413900 = $ 243,300