Problem 18-2A Jorge Company bottles and distributes B-Lite, a diet soft drink. T
ID: 2519816 • Letter: P
Question
Problem 18-2A 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 2014, 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
Explanation / Answer
1) CVP income statement
Sales 1,800,000
Variable expenses
Cost of goods sold 1,170,000
Selling expenses 70,000
Administrative expenses 20,000
Total variable expenses 1,260,000
Contribution margin 540,000
Fixed expenses
Cost of goods sold 280,000
Selling expenses 65,000
Administrative expenses 60,000
Total fixed expenses 405,000
Net income 135,000
2)
Break-even point in units
Unit selling price 0.5
Unit variable costs 0.35
Unit contribution margin 0.15
Fixed costs 405,000
Unit contribution margin 0.15
Break-even point in units 2,700,000
Break-even point in dollars
Break-even point in units 2,700,000
Unit selling price 0.5
Break-even point in $ 1,350,000
3) CM ratio
Unit contribution margin $0.15
Unit selling price $0.50
CM ratio 30%
MOS ratio
Total sales $1,800,000
Break-even sales $1,350,000
MOS($) $450,000
Total sales $1,800,000
MOS ratio 25%
4)
Sales dollars required to earn target income
Fixed costs $405,000
Target income $180,000
Total fixed cost + target income $585,000
CM ratio 30%
Sales $ required $1,950,000