Calculating breakeven point for two products; margin of safety The contribution margin income statement of Dandy Donuts for May 2012 follows:
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DANDY DONUTS |
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Sales revenue |
$ 190,000 |
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Variable costs: |
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Cost of goods sold |
$ 56,000 |
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Marketing costs |
20,000 |
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General and administrative costs |
19,000 |
95,000 |
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Contribution margin |
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$ 95,000 |
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Fixed costs: |
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Marketing costs |
27,300 |
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General and administrative costs |
50,700 |
78,000 |
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Operating income |
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$ 17,000 |
Dandy sells three dozen plain donuts for every dozen custard filled donuts. A dozen plain donuts sells for $6, with a variable cost of $3 per dozen. A dozen custard filled donuts sells for $8, with a variable cost of $4 per dozen.
Requirements
1. Calculate the weighted average contribution margin.
2. Determine Dandy’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 Dandy’s margin of safety in dollars for May 2012.
4. If Dandy can increase the monthly sales revenue from May’s level by 25%, what will operating income be? (The sales mix remains unchanged.)