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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
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