The contribution margin income statement of Westlake Coffee for February follows:

Westlake coffee sells three small coffees for every large coffee. A small coffee sells for $ 3.00, with a variable expense of $ 1.50. A large coffee sells for $ 5.00, with a variable ­expense of $ 2.50.

Requirements 

1. Determine Westlake Coffee’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 Westlake Coffee’s margin of safety in dollars. 

3. Use Westlake Coffee’s operating leverage factor to determine its new operating in-come if sales volume increases 15%. Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged.

Transcribed Image Text:

Westlake Coffee Contribution Margin Income Statement Month Ended February 29 S Sales revenue 6 Less variable expenses: S 126,000 Cost of goods sold Marketing expense General and administrative expense 5 52,000 8,000 3,000 63,000 S 63,000 10 Contribution margin 11 Less fxed expenses 12 13 14 Operating incomo 15 Marketine expense General and administratwe expense s-23,800 S 35,000