The contribution margin income statement of

Awesome

Coffee for

January

follows:

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Awesome

Coffee sells three small coffees for every large coffee. A small coffee sells for

$2.00,

with a variable expense of

$1.00.

A large coffee sells for

$6.00,

with a variable expense of

$3.00.

Read the requirements

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Part 1

Requirement 1. Determine the coffee shop's monthly breakeven point in the numbers of small coffees and large coffees. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of expenses: variable and fixed.

Begin by identifying the formula to compute the total breakeven point in units. (Abbreviations used: avg. = Average; CM = Contribution margin.)

(

Fixed expenses

+

Operating income

)

Weighed-avg. CM per unit

=

Breakeven sales in units

Part 2

Now calculate the weighted-average contribution margin per unit. (Round the weighted-average contribution margin per unit to the nearest cent.)

		Small	Large	Total
Sales price per unit
Less:	Variable expense per unit
Contribution margin per unit
Sales mix in units
Contribution margin per unit
Weighted-average contribution margin per unit

Part 3

The breakeven point is

small cups and

large cups of coffee.

Part 4

Prepare a summary contribution margin income statement to prove your answer above. (Complete all input fields. For amounts with a $0 balance, make sure to enter "0" in the appropriate input field.)

		Small	Large	Total
Sales revenue
Less:	Variable expenses
Contribution margin
Less:	Fixed expenses
Operating income

Part 5

Requirement 2. Compute the coffee shop's margin of safety in dollars.

Identify the formula to compute the margin of safety in dollars.

Sales

-

Breakeven sales in dollars

=

Margin of safety in dollars

Part 6

The margin of safety in dollars is

.

Part 7

Requirement 3. Use the coffee shop's operating leverage factor (using the

January

contribution margin income statement) to determine its new operating income if sales volume increases

12%.

Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged.

Identify the formula to compute the operating leverage factor.

Contribution margin

Operating income

=

Operating leverage factor

Part 8

(Round your answer to two decimal places.)

Awesome Coffee's operating leverage factor is

.

Part 9

If Awesome Coffee can increase sales revenue by 12%, keeping the sales mix the same, operating income
will be		.

Part 10

Prepare a summary contribution margin income statement to prove your answer above. (For amounts with a $0 balance, make sure to enter "0" in the appropriate input field.)

Awesome Coffee
Effect on Operating Income of 12% Increase in Sales Volume
		Current level	Percent increase	Dollar increase
Sales revenue			12%
Less:	Variable expenses		12%
Contribution margin
Change in fixed expenses
Operating income before sales increase
Operating income after sales increase

Data table 2 N 82,000 A B 1 Awesome Coffee Contribution Margin Income Statement 3 Month Ended January 31 4 Sales revenue $ 5 Less variable expenses: 6 Cost of goods sold $ 26,000 7 Marketing expense 14,000 8 General and administrative expense 1,000 9 Contribution margin 10 Less fixed expenses: 11 Marketing expense $ 17,850 12 General and administrative expense 3,150 $ 13 Operating income 41,000 A 41,000 21,000 20,000