The contribution margin income statement of Morgantown Coffee for October follows:

Morgantown 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 $4.00, with a variable expense of $2.00.
Requirements
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.
2. Compute the coffee shop's margin of safety in dollars.
3. Use the coffee shop's operating leverage factor (using the October contribution margin income statement) to determine its new operating income if sales volume increases 13%. Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged.

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Morgantown Coffee Contribution Margin Income Statement Month Ended October 31 $ 95,000 Sales revenue Less variable expenses: Cost of goods sold Marketing expense General and administrative expense Contribution margin Less fixed expenses: Marketing expense General and administrative expense Operating income $ 33,500 12,000 2,000 47,500 $ 47,500 $ 19,125 3,375 22,500 $ 25,000