Problem 1:
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.
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Sales
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$1,807,700
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Selling expenses-variable
|
|
Direct materials
|
429,500
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Selling expenses-fixed
|
|
Direct labor
|
357,100
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Administrative expenses-variable
|
|
Manufacturing overhead-variable
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313,700
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Administrative expenses-fixed
|
|
Manufacturing overhead-fixed
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285,100
|
|
(a) Prepare a CVP income statement for 2014 based on management's estimates.
(b) Calculate variable cost per bottle.
(c) Compute the break-even point in (1) units and (2) dollars.
(d) Compute the contribution margin ratio and the margin of safety ratio.
(e) Determine the sales dollars required to earn net income of $241,000.
Problem 2:
Lorge Corporation has collected the following information after its first year of sales. Sales were $2,339,200 on 146,200 units; selling expenses $350,880 (40% variable and 60% fixed); direct materials $747,082; direct labor $416,670; administrative expenses $409,360 (20% variable and 80% fixed); manufacturing overhead $526,320 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.
(a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year.
(b)Compute the break-even point in units and sales dollars for the first year.
(c) The company has a target net income of $453,220. What is the required sales in dollars for the company to meet its target?
(d) If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio?
(e) The company is considering a purchase of equipment that would reduce its direct labor costs by $152,048 and would change its manufacturing overhead costs to 30% variable and 70% fixed (assume total manufacturing overhead cost is $526,320, as above). It is also considering switching to a pure commission basis for its sales staff. This would change selling expenses to 90% variable and 10% fixed (assume total selling expense is $350,880, as above). Compute (1) the contribution margin and (2) the contribution margin ratio, and recompute (3) the break-even point in sales dollars.