Spirit Rock Calendars imprints calendars with college names. The company has fixed expenses of $1,095,000 each month plus variable expenses of $6.50 per carton of calendars. Of the variable expense, 70% is cost of goods sold, while the remaining 30% relates to variable operating expenses. The company sells each carton of calendars for $16.50. Read the requirements Requirement 1. Compute the number of cartons of calendars that Spirit Rock Calendars must sell each month to breakeven. Begin by determining the basic income statement equation. = Operating income Using the basic income statement equation you determined above solve for the number of cartons to break even. The breakeven sales is cartons. Requirement 2. Compute the dollar amount of monthly sales Spirit Rock Calendars needs in order to earn $308,000 in operating income. Begin by determining the formula = Target sales in dollars (Round the contribution margin ratio to two decimal places.) The monthly sales needed to earn $308,000 in operating income is Requirement 3. Prepare the company's contribution margin income statement for June for sales of 495,000 cartons of calendars. Spirit Rock Contribution Margin Income Statement Month Ended June 30 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. Margin of safety (in dollars) The margin of safety is What is the operating leverage factor at this level of sales? Begin by determining the formula. Operating leverage factor (Round the operating leverage factor to three decimal places.) The operating leverage factor is Requirement 5. By what percentage will operating income change if July's sales volume is 14% higher? Prove your answer. (Round the percentage to two decimal places.) If volume increases 14%, then operating income will increase % Prove your answer. (Round the percentage to two decimal places.) Original volume (cartons) Add: Increase in volume New volume (cartons) Multiplied by: Unit contribution margin New total contribution margin Less: Fixed expenses New operating income vs. Operating income before change in volume Increase in operating income Percentage change - Requirements 1. Compute the number of cartons of calendars that Spirit Rock Calendars must sell each month to break even. 2. Compute the dollar amount of monthly sales that the company needs in order to earn $308,000 in operating income (round the contribution margin ratio to two decimal places). 3. Prepare the company's contribution margin income statement for June for sales of 495,000 cartons of calendars. 4. What is June's margin of safety (in dollars)? What is the operating leverage factor at this level of sales? 5. By what percentage will operating income change if July's sales volume is 14% higher? Prove your
