Concept explainers
The contribution margin income statement of Delectable Donuts for May 2018 follows:
Delectable sells five dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4.00, with a variable cost of $1.60 per dozen. A dozen custard-filled donuts sells for $8.00, with a variable cost of $3.20 per dozen.
Requirements
- 1. Calculate the weighted-average contribution margin.
- 2. Determine Delectable’s monthly breakeven 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 categories of costs: variable and fixed.
- 3. Compute Delectable’s margin of safety in dollars for May 2018.
- 4. Compute the degree of operating leverage for Delectable Donuts. Estimate the new operating income if total sales increase by 20%. (Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar. Assume the sales mix remains unchanged.)
- 5. Prove your answer to Requirement 4 by preparing a contribution margin income statement with a 20% increase in total sales. (The sales mix remains unchanged.)
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