Krazy CreamKrazy Cream

sells

twotwo

dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for

$ 4.00$4.00,

with total variable cost of

$ 1.60$1.60

per dozen. A dozen custard-filled donuts sells for

$ 8.00$8.00,

with total variable cost of

$ 3.20$3.20

per dozen.

1.

Calculate the weighted-average contribution margin.

2.

Determine

Krazy CreamKrazy Cream's

monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of costs: variable and fixed.

3.

Compute

Krazy CreamKrazy Cream's

margin of safety in dollars for

AugustAugust

20182018.

4.

Compute the degree of operating leverage for

Krazy CreamKrazy Cream

Donuts. Estimate the new operating income if total sales increase by

40 %40%.

(Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar. Assume the sales mix remains unchanged.)

5.

Prove your answer to Requirement 4 by preparing a contribution margin income statement with a

40 %40%

increase in total sales. (The sales mix remainsunchanged.)

Krazy Cream Donuts
Contribution Margin Income Statement
Month Ended August 31, 2018
Net Sales Revenue			$127,000
Variable Costs:
	Cost of Goods Sold	$32,500
	Selling Costs	17,200
	Administrative Costs	1,100	50,800
Contribution Margin			76,200
Fixed Costs:
	Selling Costs	21,600
	Administrative Costs	7,200	28,800
Operating Income			$47,400