Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose the Coffee Bean has a new shop in a Cambridge village shopping center that sells high-end teas and coffees. Further, suppose it has


 

Suppose the Coffee Bean has a new shop in a Cambridge village shopping center that sells high-end teas and coffees. Further, suppose it has added smoothie drinks to its product line. Below are the assumed sales and cost data for the company. Coffee Tea Smoothie Sales price per (12 oz.) serving $1.35 $1.25 $1.95 Variable cost per serving 0.60 0.45 0.75 $8,000 Fixed costs per month Assume that the company sells each month an average of 6,000 servings of coffee, 3,750 servings of tea, and 2,250 servings of smoothies. REQUIRED a. Calculate Coffee Bean's operating leverage ratio Numerator Contribution margin Denominator Result Pre-tax profit 600,000 x Operating leverage ratio 7,337.5 x 81.7717 b. If sales increase by 20%, by how much will before-tax profit be expected to change? $ 3,067.5 c. If sales decrease by 20%, by how much will before-tax profit be expected to change? $ (3,067.5) x Note: Use a negative sign with your answer to indicate a decrease in profits. Check

Step by Step Solution

There are 3 Steps involved in it

Step: 1

a To calculate the operating leverage ratio we first need to find the total contribution margin ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamental Accounting Principles

Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta

20th Edition

1259157148, 78110874, 9780077616212, 978-1259157141, 77616219, 978-0078110870

More Books

Students also viewed these Accounting questions