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

The contribution margin income statement of Isabelle’s Ice Cream Shoppe for July 2008 follows:

Isabelle sells four sugar cones for every one large waffle cone. A regular sugar cone sells for $2, with a variable expense of $1. A large waffle cone sells for $4, with a variable expense of $2.
Requirements 1. Determine Isabelle’s monthly breakeven point in the numbers of regular sugar cones and large waffle cones. Prove your answer by preparing a summary con¬ tribution margin income statement at the breakeven level of sales. Show only - two categories of expenses: variable and fixed.
2. Compute Isabelle’s margin of safety in dollars.
3. Use Isabelle’s operating leverage factor to determine her new operating income if sales volume increases by 15%. Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged.

Transcribed Image Text:

Sales revenue. Variable expenses: ISABELLE'S ICE CREAM SHOPPE Contribution Margin Income Statement For the Month Ended July 31, 2008 $12,000 Cost of goods sold. $4,000 Marketing expense.. 500 General and administrative expense. 1,500 6,000 Contribution margin. 6,000 Fixed expenses: Marketing expense.. 500 General and administrative expense. 1,900 2,400 Operating income......... $ 3,600