Cost-Volume- Profit Analysis 1187 P21-58A Calculating breakeven point for two pr
ID: 2541362 • Letter: C
Question
Cost-Volume- Profit Analysis 1187 P21-58A Calculating breakeven point for two products, margin of safety, and Learning Objectives 2,45 Lerning Objectives 2.4s operating leverage 2. 9,000 dz plain &3,000 dz The contrhnon marpn income stannont of Sugar laps Dous fr Aa gust 2018 SUGAR LIPS DONUTS Contribution Margin Income Statement Month Ended August 31, 2018 Sales Revenue 125.000 Variable Costs Cost of Goods Sold Selling Costs Administrative $32,100 17,400 6 750 56,250 68,750 Contribution Margin Fixed Costs Selling Costs Administrative Costs 24,750 8.250 33,000 S 35.750 Operating Income Sugar Lps sells three dozen plain donuts for every dozen custard-filled doout A dozen plan donuts sells for $4.00, with total variable cost of $1.30 per donc A dozen custard-filled donuts sells for $8.00, with total variable cost of $3.60 per dozen. ation Requirements 1. Calculate the weighted-average contribution margin 2. Determine Sugar Lips's monthly brcakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categorics of costs: variable and fised. 3. Compute Sugar Lips's margin of safety in dollars for August 2018 4·Compute the degree of operating leverage for Sugar Lips Donuts. Estimate the new operating income if total sales increase by 30%. (Round the degree of oper- ating leverage to four decimal places and the final answer to the ncarest dollar Assume the sales mix remains unchanged.) Prove your answer to Requirement 4 by preparing a contribution margin income statement with a 30% increase in total sales (The sales mix remains unchanged.) 5.Explanation / Answer
1.Weighted Average Contribution Margin:
Weighted avg. CM = (CM of Plain Donuts * 3/4) + (CM of Custurd filled Donuts * 1/4) = (2.2*3/4) + (4.4*1/4) = 2.75 per dozen
2.Breakeven Point in dozen:
Breakeven Point in dozen (Total) = Fixed Cost / Weighted avg. CM = 33,000 / 2.75 = 12,000 dozens
Dozens of Plain Donut = 12000*3/4 = 9,000 dozens
Dozens of Custurd filled Donut = 12000*1/4 = 3,000 dozens
3.Margin of Safety ($)
Current Sales = 125,000
Breakeven Sales = 60,000 (as calculated above)
Margin of Safety = Current Sales - Breakeven Sales = 65,000
4.Operating Leverage = Contribution Margin / Net Operating Income = 68750 / 35750 = 1.9231 (rounded off)
Increase in operating income = Increase in Sales * Operating Leverage = 30 * 1.9231 = 57.693%
New Operating Income = 35750 + (35750*57.693%) = 56375
5.
Plain Donuts Custurd filled Donuts Sellin Price per dozen 4.00 8.00 Variable Cost (1.80) (3.60) Contribution Margin per dozen 2.20 4.40 Ratio of Sales(in units) 3.00 1.00