Operating income $ 900.00 3. Save a copy of your original model to a new spreadsheet called "alternative contract". Say Jake's employee wanted to negotiate a different work contract: $1,500 per month plus 5% of revenue. Given his original sales volume and mix, how would this contract have changed Jake's operating income? What is the new operating leverage factor? What is the new expected percentage change in operating income if volume increases as expected in the future? Briefly explain your findings to the client. Operating leverage factor $ 2.67 Expected % change in op inc $ 13.33 Jake's Pet Supplies Pro Forma Contribution Margin Income Statement For the month ending June 30 6.00 60% Total Calculation of Weighted average CM per unit Product #1 Product #2 1,200.00 $ 1,200.00 $ 200 100 $ 2,400.00 300 ASSUMPTIONS Product #1: Sales price per unit Variable costs per unit: Commision Launch cost per unit Shipping and handling Total variable cost per unit Product #1 Launch-it Launch-it Unit CM $ $ 10.00 ||CM % Breakeven point: $ $ 1.00 -in units $ $ 1.00 -in sales revenue $ $ 2.00 S 4.00 Target profit volume: -in units $ $ 200.00 -in sales revenue $ $ 6.00 $ 12.00 $ 8.00 250.00 Product #1 Product #2 2,500.00 || Sales revenue $ 2,000.00 $ 3,000.00 $ minus variable costs: Commisions $ 200.00 $ 300.00 S 1,583.33 Shipping and handlings 400.00 $ 800.00 $ 15,833.33 || Purchase cost $ 200.00 $ 700.00 $ Total Variable costs $ 800.00 $ 1,800.00 $ Monthly volume Product #2 Total Product #1 $ S S $ Contribution Margin Sales units Total Contribution Margin 5,000.00 WACM/unit 500.00 1,200.00 900.00 2,600.00 | Multiproduct Breakeven point: Units 2,400.00 Breakeven units Price per unit Sales revenue at breakeven 500.00 1,000.00 Multiproduct Target profit point: 1,500.00 Units Target profit 900.00 Price per unit Sales revenue at target profit 48% 200.00 125.00 $ $ 300.00 188.00 $ 1,200.00 $ 1,200.00 $ Product #2: Sales price per unit Variable costs per unit: Commison Treat cost per unit Shipping and handling Total variable cost per unit Treat-time $ Treat-time $ 30.00 Product #2 Unit CM $ 3.00 CM % $ 7.00 Breakeven point: $ 8.00 -in units $ 18.00 -in sales revenue $ $ $ $ 100.00 63.00 30.00 1,890.00 10.00 1,250.00 $ $ 3,140.00 Contribution Margin 12.00 40% Fixed costs: Entry fees 125.00 || Salary 3,750.00 || Total fixed costs: $ $ Total $ S $ 200.00 Product #1 $ $ $ $ 792.00 Product #2 $ 100.00 $ 396.00 $ 30.00 $ 11,880.00 $ $ S Monthly volume 300.00 1,188.00 40.00 19,800.00 $ 10.00 7,920.00 $ Operating income 791.67 23,750.00 || WACM% $ $ $ 100.00 Target profit volume: -in units -in sales revenue $ 1,000.00 $ 500.00 $ 1,500.00 Fixed costs per month: Salary Entry fee Total fixed costs per month Margin of Safety (in $) $ 1,860.00 Target profit per month $ 8,000.00 Margin of Safety % 37.20% Expected change in volume (%) 5.00% Operating Leverage Factor $ 2.67 Expected % change in operating income (%) 13.33% Operating income $ 900.00 3. Save a copy of your original model to a new spreadsheet called "alternative contract". Say Jake's employee wanted to negotiate a different work contract: $1,500 per month plus 5% of revenue. Given his original sales volume and mix, how would this contract have changed Jake's operating income? What is the new operating leverage factor? What is the new expected percentage change in operating income if volume increases as expected in the future? Briefly explain your findings to the client. Operating leverage factor $ 2.67 Expected % change in op inc $ 13.33 Jake's Pet Supplies Pro Forma Contribution Margin Income Statement For the month ending June 30 6.00 60% Total Calculation of Weighted average CM per unit Product #1 Product #2 1,200.00 $ 1,200.00 $ 200 100 $ 2,400.00 300 ASSUMPTIONS Product #1: Sales price per unit Variable costs per unit: Commision Launch cost per unit Shipping and handling Total variable cost per unit Product #1 Launch-it Launch-it Unit CM $ $ 10.00 ||CM % Breakeven point: $ $ 1.00 -in units $ $ 1.00 -in sales revenue $ $ 2.00 S 4.00 Target profit volume: -in units $ $ 200.00 -in sales revenue $ $ 6.00 $ 12.00 $ 8.00 250.00 Product #1 Product #2 2,500.00 || Sales revenue $ 2,000.00 $ 3,000.00 $ minus variable costs: Commisions $ 200.00 $ 300.00 S 1,583.33 Shipping and handlings 400.00 $ 800.00 $ 15,833.33 || Purchase cost $ 200.00 $ 700.00 $ Total Variable costs $ 800.00 $ 1,800.00 $ Monthly volume Product #2 Total Product #1 $ S S $ Contribution Margin Sales units Total Contribution Margin 5,000.00 WACM/unit 500.00 1,200.00 900.00 2,600.00 | Multiproduct Breakeven point: Units 2,400.00 Breakeven units Price per unit Sales revenue at breakeven 500.00 1,000.00 Multiproduct Target profit point: 1,500.00 Units Target profit 900.00 Price per unit Sales revenue at target profit 48% 200.00 125.00 $ $ 300.00 188.00 $ 1,200.00 $ 1,200.00 $ Product #2: Sales price per unit Variable costs per unit: Commison Treat cost per unit Shipping and handling Total variable cost per unit Treat-time $ Treat-time $ 30.00 Product #2 Unit CM $ 3.00 CM % $ 7.00 Breakeven point: $ 8.00 -in units $ 18.00 -in sales revenue $ $ $ $ 100.00 63.00 30.00 1,890.00 10.00 1,250.00 $ $ 3,140.00 Contribution Margin 12.00 40% Fixed costs: Entry fees 125.00 || Salary 3,750.00 || Total fixed costs: $ $ Total $ S $ 200.00 Product #1 $ $ $ $ 792.00 Product #2 $ 100.00 $ 396.00 $ 30.00 $ 11,880.00 $ $ S Monthly volume 300.00 1,188.00 40.00 19,800.00 $ 10.00 7,920.00 $ Operating income 791.67 23,750.00 || WACM% $ $ $ 100.00 Target profit volume: -in units -in sales revenue $ 1,000.00 $ 500.00 $ 1,500.00 Fixed costs per month: Salary Entry fee Total fixed costs per month Margin of Safety (in $) $ 1,860.00 Target profit per month $ 8,000.00 Margin of Safety % 37.20% Expected change in volume (%) 5.00% Operating Leverage Factor $ 2.67 Expected % change in operating income (%) 13.33%
