Question

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Calendars imprints calendars with college names. The company has fixed expenses of

$ 1 comma 095 comma 000$1,095,000

each month plus variable expenses of

$ 6.50$6.50

per carton of calendars. Of the variable​ expense,

6868​%

is cost of goods​ sold, while the remaining

3232​%

relates to variable operating expenses. The company sells each carton of calendars for

$ 16.50$16.50.

Read the requirements

LOADING...

.

Requirement 1. Compute the number of cartons of calendars that

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Calendars must sell each month to breakeven.  

Begin by determining the basic income statement equation.

-

-

=

Operating income

Using the basic income statement equation you determined above solve for the number of cartons to break even.

The breakeven sales is

cartons.

Requirement 2. Compute the dollar amount of monthly sales

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Calendars needs in order to earn

$ 308 comma 000$308,000

in operating income.  

Begin by determining the formula.

(

+

) /

=

Target sales in dollars

​(Round the contribution margin ratio to two decimal​ places.)

The monthly sales needed to earn $308,000 in operating income is $

.

Requirement 3. Prepare the​ company's contribution margin income statement for June for sales of

495 comma 000495,000

cartons of calendars.

  

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Contribution Margin Income Statement
Month Ended June 30

Requirement 4. What is​ June's margin of safety​ (in dollars)? What is the operating leverage factor at this level of​ sales?

Begin by determining the formula.

-

=

Margin of safety (in dollars)

The margin of safety is $

.

What is the operating leverage factor at this level of​ sales? Begin by determining the formula.

/

=

Operating leverage factor

​(Round the operating leverage factor to three decimal​ places.)

The operating leverage factor is

.

Requirement 5. By what percentage will operating income change if​ July's sales volume is

1414​%

​higher? Prove your answer. ​(Round the percentage to two decimal​ places.)

If volume increases 14%, then operating income will increase

%.

Prove your answer. ​(Round the percentage to two decimal​ places.)

Original volume (cartons)
Add: Increase in volume
New volume (cartons)
Multiplied by: Unit contribution margin
New total contribution margin
Less: Fixed expenses
New operating income
vs. Operating income before change in volume
Increase in operating income
Percentage change		%

Answer 1

1		Sales Revenue - Variable Expenses - Fixed Expenses = Operating Income
		(Sales price*Units Sold) - (Variablecost per unit*Units Sold) - Fixed Expenses = 0
		(16.50*Units Sold) - (6.50*Units Sold) - 1095000 = 0
		10 Units sold = 1095000
		Units Sold	109500	1095000/10
		The breakeven sales is 109500 cartons
2		Fixed Expenses + Target Operating Income/Contribution margin ratio = Target sales in dollars
		(1095000+308000)/(10/16.50)
		2314950
		Monthly Sales needed to earn $ 308000 in operating income is $ 2314950
3		College Try
		Contribution Margin Income Statement
		Month ended June 30
		Sales Revenue		(495000*16.50)			8167500
		Less : Variable Expenses
		Cost of Goods Sold		(495000*6.50*68%)			2187900
		Operating Expenses		(495000*6.50*32%)			1029600
		Contribution Margin					4950000
		Less: Fixed Expenses					1095000
		Operating Income					3855000
		Margin of Safety = Sales - Sales at breakeven
			8167500 - (109500*16.50)
			6360750
		Operating Leverage Factor				Contribution Margin/Operating Income
						4950000/3855000
						1.284
		If Volume increases by 14%, the net operating income will increase by 0.14*1.284 = 17.98%
		Original Volume (cartons)				495000
		Add : Increase in Volume				69300
		New Volume Cartons				564300
		Multiplied by : Unit contribution margin				10
		New total contribution margin				5643000
		Less : fixed Expenses				1095000
		New Operating income				4548000
		vs Operating income before change in volume				3855000
		Increase in operating income				693000
		percentage change				17.98%