Question

The Proportion Challenged Candy Co. makes and sells boxes of chocolate candy. Proportion has fixed expenses of $250,000 each month plus variable expenses of $5.25 per box of candy. Proportion sells each box of candy for $9.75.

• Compute the contribution margin of each box of candy.

• Compute the number of boxes of candy that Proportion must sell each month to break even. Round up to the nearest whole box.

• Compute the contribution margin ratio for a box of candy

Compute the dollar amount of monthly sales Proportion needs to earn $300,000 in profit. (Round the contribution margin ratio to four decimal places. Round sales up to the nearest dollar.)

• Prepare Proportion’s contribution margin income statement for December for sales of 260,000 boxes of candy.

• What is the degree of leverage for December sales of 260,000 boxes of candy? (Carry answer out to four decimal places.)

• What is December’s margin of safety (in dollars and cents)?

• By what percentage will operating income change if December’s sales volume is 23% higher? (Round to two decimal places.)

• Prove your answer by comparing the difference in operating income after the change with the operating income before the change.

****PLEASE SHOW YOUR WORK STEP BY STEP ON EACH BULLET POINT***

Answer 1

Ans. 1	Particulars	Per unit
	Selling price per box	$9.75
	Less: Variable cost per box	-$5.25
	Contribution margin per box	$4.50
Ans. 2	Break even point in units   =    Total fixed cost / Contribution margin per box
	$250,000 / $4.50
	55556	boxes
Ans. 3	Contribution margin ratio   = Contribution margin per box / Selling price * 100
	$4.50 / $9.75 * 100
	46.1538%
Ans. 4	Sales for target profit = (Fixed cost + Profit) / Contribution margin ratio
	($250,000 + $300,000) / 46.1538%
	$550,000 / 46.1538%
	$1,191,668
Ans. 5	Proportion Challenged Candy Co.
	CVP Income Statement
		Total	Per unit
	Sales (260,000 *p)	$2,535,000	$9.75
	Variable expenses (260,000 * v)	-$1,365,000	-$5.25
	Contribution margin	$1,170,000	$4.50
	Fixed expenses	-$250,000
	Net operating income	$920,000
	P   =   price per unit
	V = variable cost per unit
Ans. 6	Degree of operating leverage    =   Contribution margin / Operating income
	$1,170,000 / $920,000
	1.2717