College Team Calendars imprints calendars with college names. The company has fixed expenses of $1,065,000 each month plus variable expenses of $3.50 per carton of calendars. Of the variable expense,75% is cost of goods sold, while the remaining 25% relates to variable operating expenses. The company sells each carton of calendars for $13.50.

Requirement 1. Compute the number of cartons of calendars that College Team Calendars must sell each month to breakeven.

Begin by determining the basic income statement equation.

-

-

=

Operating income

Using the basic income statement equation you determined above solve for the number of cartons to break even

the breakeven sales is

cartons

Requirement 2. Compute the dollar amount of monthly sales

College Team Calendars needs in order to earn $304,000 in operating income.

Begin by determining the formula.

(

+

) /

=

Target sales in dollars

(Round the contribution margin ratio to two decimal places.)

The monthly sales needed to earn $304,000 in operating income is $

.

Requirement 3. Prepare the company's contribution margin income statement for June for sales of 495,000 cartons of calendars.

Begin by determining the formula.Requirement 4. What is June's margin of safety (in dollars)? What is the operating leverage factor at this level of sales?

College Team
Contribution Margin Income Statement
Month Ended June 30

Requirement 4. What is June's margin of safety (in dollars)? What is the operating leverage factor at this level of sales?

Begin by determining the formula.

-

=

Margin of safety (in dollars)

The margin of safety is $

.

What is the operating leverage factor at this level of sales? Begin by determining the formula.

/

=

Operating leverage factor

(Round the operating leverage factor to three decimal places.)

The operating leverage factor is

.

Requirement 5. By what percentage will operating income change if July's sales volume is

13% higher? Prove your answer. (Round the percentage to two decimalplaces.)

If volume increases 13%, then operating income will increase

%.

Prove your answer. (Round the percentage to two decimal places.)

Original volume (cartons)
Add: Increase in volume
New volume (cartons)
Multiplied by: Unit contribution margin
New total contribution margin
Less: Fixed expenses
New operating income
vs. Operating income before change in volume
Increase in operating income
Percentage change		%