The contribution margin income statement of Sugar Lips Donuts for August 2018 follows:
SUGAR LIPS DONUTS
contribution margin Income Statement
Month Ended August 31, 2018

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Sugar Lips sells three 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 $8.00, with total variable cost of $3.60 per dozen.
Requirements
1. Calculate the weighted-average contribution margin.
2. Determine Sugar 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 Lips's margin of safety in dollars for August 2018.
4. Compute the degree of operating leverage for Sugar Lips Donuts. Estimate the new operating income if total sales increase by 30%. (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 30% increase in total sales. (The sales mix remains unchanged.)

Transcribed Image Text:

Net Sales Revenue $ 125,000 Variable Costs: Cost of Goods Sold $ 32,100 Selling Costs 17,400 Administrative Costs 6,750 56,250 Contribution Margin 68,750 Fixed Costs: Selling Costs 24,750 Administrative Costs 8,250 33,000 Operating Income $ 35,750