Contribution Income Statement and Operating Leverage

Florida Berry Basket harvests early$-$season strawberries for shipment throughout the eastern United States in March. The strawberry farm is maintained by a permanent staff of $10$ employees and seasonal workers who pick and pack the strawberries. The strawberries are sold in crates containing $100$ individually packaged one$-$quart containers. Affixed to each one$-$quart container is the distinctive Florida Berry Basket logo inviting buyers to "Enjoy the berry best strawberries in the world!" The selling price is $$90$ per crate, variable costs are $$70$ per crate, and fixed costs are $$278,000$ per year. In the year $2008,$ Florida Berry Basket sold $43,000$ crates.

$($a$)$ Prepare a contribution income statement for the year ended December $31,2008.$ HINT: Use a negative sign with both "costs" answers.

FLORIDA BERRY BASKET

Income Statement

For the Year Ended December $31,2008$

Sales Answer

$3,870,000$

Variable costs Answer

Contribution margin Answer

$860,000$

Fixed costs Answer

Net income Answer

$582,000$

$($b$)$ Determine the company's $2008$ operating leverage. $($Round your answer to two decimal places.$)$

Answer

$1\mathrm{.}48$

$($c$)$ Calculate the percentage change in profits if sales decrease by $10$ percent. $($Round your answer to one decimal place.$)$

Answer

$\%$ decrease

$($d$)$ Management is considering the purchase of several berry$-$picking machines. This will increase annual fixed costs to $$378,000$ and reduce variable costs to $$67\mathrm{.}50$ per crate. Calculate the effect of this acquisition on operating leverage and explain any change. $($Round your answer to two decimal places.$)$

Answer