E6-11 Calculating Target Profit, Margin of Safety, Degree of Operating Leverage [LO 6-2, 6-3, 6-4, 6-5]

Danas Ribbon World makes award rosettes. Following is information about the company:

Variable cost per rosette

$

2.40

Sales price per rosette

5.00

Total fixed costs per month

3900.00

Required: 1. Suppose Danas would like to generate a profit of $1,060. Determine how many rosettes it must sell to achieve this target profit. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

Target Units

2. If Danas sells 1,700 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales. (Round your Margin of Safety percentage to two decimal places (i.e. .1234 should be entered as 12.34%).

Margin of Safety (Units)		Rosettes
Margin of Safety in Dollars
Percentage of Sales		%

3. Calculate Danas degree of operating leverage if it sells 1,700 rosettes. (Round your intermediate calculations to 2 decimal places and final answer to 4 decimal places.)

Degree of Operating Leverage

4. Using the degree of operating leverage, calculate the change in Danas profit if unit sales drop to 1,275 units. Confirm this by preparing a new contribution margin income statement. (Round your intermediate calculations to 4 decimal places and final answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

Effect on Profit

%

Contribution Margin Income Statement
For 1275 Rosettes
Contribution Margin
Income from Operations