CVP income statement

P5-2A Prepare a CVP income statement, compute break-even point, contribution margin ratio, margin of safety ratioand sales for target net income

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.

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

Instructions

(a) Prepare a CVP income statement for 2017 based on management estimates. (show column for total amounts only.)

(b) Compute the break-even point in (1) units and (2) dollars.

(c ) Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)

(d) Determine the sales dollars required to earn net income of $180,000.

NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .

(a)

Prepare a CVP income statement for 2017 based on management estimates. (show column for total amounts only.)

JORGE COMPANY

CVP Income Statement (Estimated)

For the Year Ending December 31, 2017

Sales

Variable expenses

Cost of goods sold

Selling expenses

Administrative expenses

Total variable expenses

Contribution margin

Fixed expenses

Cost of goods sold

Selling expenses

Administrative expenses

Total fixed expenses

Net income

(b)

$1,800,000

$1,170,000

135,000

80,000

1,385,000

415,000

280,000

Value

60,000

?

?

Compute the break-even point in (1) units and (2) dollars.

(b)(1)

Value

Value

?

Fixed costs

Unit contribution margin

Break-even point in units

(b)(2)

Break-even point in units

Unit selling price

Unit variable costs

Unit contribution margin

Value

Value

?

Break-even point in dollars

Break-even point in units

Unit selling price

Break-even point in dollars

Value

Value

?

(c ) Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)

Contribution margin ratio

Unit contribution margin

Unit selling price

Contribution margin ratio

Margin of safety ratio

Total sales

Break-even sales

Margin of safety (dollars)

Total sales

Margin of safety ratio

(d)

Value

Value

?

Value

Value

Value

Value

Value

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

Sales dollars required to earn target income

Fixed costs

Value

Target income

Value

Total fixed cost + target income

?

Contribution margin ratio

?

Sales dollars required

?

After you have completed P5-2A, consider the following additional question

1.

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.

CD5 – EXCEL Tutorial

CURRENT DESIGNS

Bill Johnson, sales manager, and Diane Buswell, controller at Current Designs are beginning to analyze the cost

considerations for one of the composite models of the kayak division. They have provided the following production

and operational costs necessary to produce one composite kayak.

Kevlar®

Resin and supplies

Finishing kit (seat, rudder, ropes, etc.)

Labor

Selling and administrative expenses – variable

Selling and administrative expenses – fixed

Manufacturing overhead – fixed

$250 per kayak

$100 per kayak

$170 per kayak

$420 per kayak

$400 per kayak

$119,000 per year

$240,000 per year

Bill and Diane have asked you to provide a cost-volume-profit analysis, to help them finalize the budget projections for

the upcoming year. Bill has informed you that the selling price of the composite kayak will be $2,000.

Instructions

(a) Calculate variable cost per unit.

(b) Determine the unit contribution margin.

(c ) Using the unit contribution margin, determine the break-even point in units for this product line.

(d) Assume that Current Designs plans to earn $270,000 on this product line. Using the unit contribution

margin, calculate the number of units that need to be sold to achieve this goal.

(e ) Based on the most recent sales forecast, Current Design plans to sell 1,000 units of this model.

Using your results from part (c ), calculate the margin of safety and the margin of safety ratio.

NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .

(a) Calculate variable cost per unit.

Kevlar®

Resin and supplies

Finishing kit (seat, rudder, ropes, etc.)

Labor

Selling and administrative expenses – variable

Total variable costs per unit

Value

Value

Value

Value

Value

?

(b) Determine the unit contribution margin.

Unit selling price

Unit variable cost

Unit contribution margin

Value

?

?

(c ) Using the unit contribution margin, determine the break-even point in units for this product line.

Selling and administrative expenses – fixed

Manufacturing overhead – fixed

Total fixed costs (a)

Unit contribution margin (b)

Break-even points (units) (a ÷ b)

Value

Value

?

Value

?

(d) Assume that Current Designs plans to earn $270,000 on this product line. Using the unit contribution

margin, calculate the number of units that need to be sold to achieve this goal.

Total fixed costs

Target net income

Total fixed costs + target net income (a)

Unit contribution margin (b)

Units need to be sold (a ÷ b)

Value

Value

?

Value

?

(e ) Based on the most recent sales forecast, Current Design plans to sell 1,000 units of this model.

Using your results from part (c ), calculate the margin of safety and the margin of safety ratio.

Margin of safety

Actual (expected) sales

Break-even sales

Margin of safety (dollars)

Value

Value

?

Margin of safety ratio

Margin of safety (dollars) (a)

Actual (expected) sales (b)

Margin of safety ratio (a ÷ b)

Value

Value

?

After you have completed CD-5, consider the following additional question

1. Assume that the unit selling price per kayak changed to $2,200 each, and fixed manufacturing overhead

increased to $360,000. Show impact of these changes on calculations.

E6-3 Compute net income under different alternatives

Barnes Company reports the following operating results for the month of August: sales $325,000

(units 5,000); variable costs $210,000; and fixed costs $75,000. Management is considering the following

independent courses of action to increase net income.

1.

Increase selling price by 10% with no change in total variable costs or sales volume.

2.

Reduce variable costs to 58% of sales.

3.

Reduce fixed costs by $15,000.

Instructions

Compute the net income to be earned under each alternative. Which course of action will produce the

highest net income?

NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .

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