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 78 cents per bottle. For the year 2014, management estimates the following revenues and costs. Sales $1,804,000 Selling expenses—variable $69,800
Direct materials 428,000 Selling expenses—fixed 65,800
Direct labor 354,000 Administrative expenses—variable 64,920
Manufacturing overhead—variable 310,000
Administrative expenses—fixed 64,900
Manufacturing overhead—fixed 288,000
a. Prepare a CVP income statement for 2014 based on management’s estimates.
b. Calculate variable cost per bottle. (Round variable cost per bottle to 2 decimal places, e. g. 0.25.)
c. Compute the break-even point in (1) units and (2) dollars. (Round answers to 0 decimal places, e. g. 1,225.)
d. Compute the contribution margin ratio and the margin of safety ratio. (Round variable cost per bottle to 2 decimal places, e. g. 0.25 and final answers to 0 decimal places, e. g. 25%.)
e. Determine the sales dollars required to earn net income of $240,852. (Round answer to 0 decimal places, e. g. 1,225.)

a. CVP income statement for 2014 based on management’s estimates.

Sales                                                                                 $1,804,000

Less Variable Costs :

Selling expenses—variable                         $69,800

Direct materials                                          $428,000

Direct labor                                                 $354,000

Administrative expenses—variable            $64,920

Manufacturing overhead—variable           $310,000   ($1,226,720)

Contribution                                                                       $577,280

Less Fixed Costs

Selling expenses—fixed                             $65,800

Administrative expenses—fixed                 $64,900

Manufacturing overhead—fixed               $288,000      ($418,700)

Net Income / (Loss)                                                           $158,580

b. $0.34

c. (1) 2,616,875 bottles and (2) $1,308,438

d. contribution margin ratio = 32 % and margin of safety ratio = 27 %

e. $2,061,100

Explanation:

Number of Units Sold = Total Revenue ÷ Selling Price per unit

                                    = $1,804,000 ÷ $0.50

                                    = 3,608,000 bottles

Variable Cost per bottle = Total Variable Costs ÷ Number of Units Sold

                                         = $1,226,720 ÷ 3,608,000

                                         = $0.34

Break-even point in (units) = Fixed Costs ÷ Contribution per unit

                                            = $418,700 ÷ ($0.50 - $0.34)

                                            = 2,616,875 bottles

Break-even point in (dollars) = Fixed Costs ÷ Contribution Margin Ratio

                                               = $418,700 ÷ ($0.16 / $0.50)

                                               = $1,308,438

Contribution Margin Ratio = Contribution / Sales × 100

                                           = ($0.50 - $0.34) / $0.50 × 100

                                           = 32 %

Margin of safety ratio = (Expected Sales - Break Even Sales) / Expected Sales × 100

                                   =  ($1,804,000 - $1,308,438) / $1,804,000 × 100

                                   =  27.470 OR 27 %

Sales to Reach Target Profit = (Target Profit + Fixed Costs) ÷ Contribution Margin Ratio

                                               = ($240,852 + $418,700) ÷ 0.32

                                               = $2,061,100

answerservice script;

since the options are not listed, when you are working on your budget you should also add water, tv, internet, miscellaneous and your 'fun' money for in your budget. when budgeting, you need to allow for fun money, and mis/accidental money so that you stick to the budget and not go crazy because you feel strapped to the budget.