Question
Sugar Lips sells four dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4.00, with total variable cost of $1.80
Sugar Lips sells four dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4.00, with total variable cost of $1.80 per dozen. A dozen custard-filled donuts sells for $7.00, with total variable cost of $3.15 per dozen.
1. | Calculate the weighted-average contribution margin. |
2. | Determine Sugar LipsSugar Lips'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 Sugar LipsSugar Lips's margin of safety in dollars forAugustAugust 20162016. |
4. | Compute the degree of operating leverage for Sugar LipsSugar Lips Donuts. Estimate the new operating income if total sales increase by10 %10%. (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 10 %10% increase in total sales. (The sales mix remainsunchanged.) |
contribution margin income statement:
Sugar Lips Donuts
Contribution Margin Income Statement
Month Ended August 31, 2016
Sales Revenue
$130,000
Variable Costs:
Cost of Goods Sold
$32,700
Selling Costs
17,600
Administrative Costs
8,200
58,500
Contribution Margin
71,500
Fixed Costs:
Selling Costs
28,463
Administrative Costs
9,487
37,950
Operating Income
$33,550
Requirements:
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