College Calendars imprints calendars with college names. The company has fixed e
ID: 2374864 • Letter: C
Question
College Calendars imprints calendars with college names. The company has fixed expenses of $1,115,000 each month plus variable expenses of $6.00 per carton of calendars. Of the variable expense, 67% in Cost of Goods Sold, while the remaining 33% related to variable operating expenses. College Calendars sells each carton of calendars for $18.50.
Requirements
1. Compute the number of cartons of calendars that College Calendars must sell each month to break even.
2. Compute the dollar amount of monthly sales College Calendars needs in order to earn $330,000 in operating income (round the contribution margin ratio to two decimal places).
3. Prepare College Calendar's contribution margin income statement for June for sales of 455,000 cartons of calendars.
4. What is June's margin of safety (in dollars)? What is the operating leverage factor at this level of sales?
5. By what percentage will operating income change if July's sales volume is 11% higher? Prove your answer.
I will give the full point amount to the individual that provides full work for each section as well has a legible format for their answers. Thanks in advance!
Explanation / Answer
1) Units to be sold to breakeven =Fixed Costs/(Price - Variable Costs) =1,115,000/(18.50-6) = 89200 2) Take fixed costs and add the the income you'd like to achieve to it. Then take unit selling price and subtract variable costs. Then divide take the total of fixed costs and goal income and divide it by the selling price less variable costs. =1,115,000 + 330,000 = 1,445,000 =18.50 - 6= 12.5 =1,445,000/12.5=115600 3) + Sales - Variable production expenses (such as materials, supplies, and variable overhead) - Variable selling and administrative expenses = Contribution margin - Fixed production expenses (including most overhead) - Fixed selling and administrative expenses = Net profit or loss 4) Margin of safety % = ( Margin of safety $ / Budgeted sales $ ) Degree of operating leverage (DOL) = Contribution margin