Comprehensive CVP problem (Learning Objectives 1, 2, 5)

Team Spirit imprints calendars with college names. The company has fixed expenses of $1,035,000 each month plus variable expenses of $3.60 per carton of calendars. Of the variable expense, 70% is Cost of Goods Sold, while the remaining 30% relates to variable operating expenses. Team Spirit sells each carton of calendars for $10.50.

Requirements 1. Use the income statement equation approach to compute the number of cartons of calendars that Team Spirit must sell each month to break even.

2. Use the contribution margin ratio shortcut formula to compute the dollar amount of monthly sales Team Spirit needs in order to earn $285,000 in operat¬ ing income (round the contribution margin ratio to two decimal places).
3. Prepare Team Spirit’s contribution margin income statement for June for sales of 450,000 cartons of calendars.
4. What is June’s margin of safety (in dollars)? What is the operating leverage factor at this level of sales?
5. By what percentage will operating income change if July’s sales volume is 13% higher? Prove your answer.