CVP analysis at a multiproduct firm (Learning Objectives 4, 5)}

The contribution margin income statement of Extreme Coffee for February 2008 follows:

Extreme Coffee sells three small coffees for every large coffee. A small coffee sells for \(\$ 2\), with a variable expense of \(\$ 1\). A large coffee sells for \(\$ 4\), with a variable expense of \(\$ 2\).
\section*{Requirements}
1. Determine Extreme Coffee's monthly breakeven point in the numbers of small coffees and large coffees. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of expenses: variable and fixed.
2. Compute Extreme Coffee's margin of safety in dollars.
3. Use Extreme Coffee's operating leverage factor to determine its new operating income if sales volume increases \(15 \%\). Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged.

EXTREME COFFEE Contribution Margin Income Statement For the Month Ended February 29, 2008 Sales revenue. $90,000 Variable expenses: Cost of goods sold $32,000 Marketing expense.. 10,000 General arc administrative expense. 3,000 45,000 Contribution margin 45,000 Fixed expenses: Marketing expense.. 16,500 General and administrative expense 3,500 20,000 $25,000 Operating incorne..