Calculating breakeven point for two products; margin of safety The contribution margin income statement of Delectable Donuts for August 2012 follows:
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DELECTABLE DONUTS |
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Sales revenue |
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$ 150,000 |
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Variable costs: |
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Cost of goods sold |
15,000 |
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Marketing costs |
4,000 |
$ 90,000 |
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Contribution margin |
$ 41,000 |
60,000 |
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Marketing costs |
12,600 |
$ 39,600 |
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Operating income |
37,800 |
50,400 |
Delectable sells four dozen plain donuts for every dozen custard filled donuts. A dozen plain donuts sells for $4, with total variable cost of $1.60 per dozen. A dozen custard filled donuts sells for $5, with total variable cost of $2 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 August 2012.
4. If Delectable can increase monthly sales revenue from August’s level by 20%, what will operating income be? (The sales mix remains unchanged.)