How do you do requirement 5? Specifically the "Prove your answer" part.
Vast Spirit 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, 71% is cost of goods sold, while the remaining 29% relates to variable operating expenses. The company sells each carton of calendars for $13.50. Read the requirements. Requirement 1. Compute the number of cartons of calendars that Vast Spirit Calendars must sell each month to breakeven. Begin by determining the basic income statement equation. Sales revenue Variable expenses Fixed expenses Operating income Using the basic income statement equation you determined above solve for the number of cartons to break even. The breakeven sales is 106,500 cartons. Requirement 2. Compute the dollar amount of monthly sales Vast Spirit Calendars needs in order to earn $304,000 in operating income. Begin by determining the formula. ( Fixed expenses + Target operating income ): Contribution margin ratio = 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 $ 1,850,000. Requirement 3. Prepare the company's contribution margin income statement for June for sales of 450,000 cartons of calendars. Vast Spirit Contribution Margin Income Statement Month Ended June 30 Sales revenue $ 6,075,000 Variable expenses: Cost of goods sold $ 1,118,250 456,750 1,575,000 Operating expenses Contribution margin 4,500,000 1,065,000 Fixed expenses $ 3,435,000 Operating income 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. Sales revenue Sales revenue at breakeven Margin of safety (in dollars) The margin of safety is $ 4,637,250 What is the operating leverage factor at this level of sales? Begin by determining the formula. Contribution margin + Operating income Operating leverage factor (Round the operating leverage factor to three decimal places.) The operating leverage factor is 1.310 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 decimal places.) If volume increases 13%, then operating income will increase 17.03 %. Prove your answer. (Round the percentage to two decimal places.) Original volume (cartons) 450,000 585,000 Add: Increase in volume New volume (cartons) 1035000 10 Multiplied by: Unit contribution margin New total contribution margin 10,350,000 Less: Fixed expenses 1,065,000 New operating income 9,285,000 3,435,000 vs. Operating income before change in volume 5850000 Increase in operating income Percentage change 17.03 %
