Question

Try Spirit Calendars imprints calendars with college names. The company has fixed expenses of $1,065,000 each month plus variable expenses of $ 3.50 per carton of calendars. Of the variable? expense, 65?% is cost of goods? sold, while the remaining 35?% relates to variable operating expenses. The company sells each carton of calendars for $13.50.

REQUIREMENTS:

Compute the number of cartons of calendars that

Try Spirit Calendars must sell each month to break even.??

2. Compute the dollar amount of monthly sales that the company needs in order to earn $304,000 in operating income? (round the contribution margin ratio to two decimal? places).??

3.Prepare the? company's contribution margin income statement for June for sales of 465,000 cartons of calendars.

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

5. By what percentage will operating income change if? July's sales volume is 15?% ?higher? Prove your answer.

Answer 1

Ans: Contribution margin per unit = $13.5-$3.50

                                                                       = $10 per carton

1.       Break -even point in unit= Fixed expenses/Contribution margin per carton

                                                                       = $1065000/$10

                                                                       = 106500 cartons

2.       Operating income= $304000

Add: Fixed expenses=$1065000

Contribution =$1369000

Contribution ratio= $10/$13.5

                                       = 74.07%

Monthly sales in $= $1369000/74.07%

                                                       = $1848252

3.       Contribution margin Income Statement

Particulars	$
Sales	6277500
Less; Cost of goods sold	1057875
Gross margin	5219625
Less: Variable operating expenses	569625
Contribution margin	4650000
Less: Fixed expenses	1065000
Net operating income	$3585000

4.       Margin of safety= Actual sales-Break even sales value

                                                    = $6277500-$1437750

                                               = $4839750

                 Operating leverage= Contribution margin/net operating income

                                                             = 4650000/3585000

                                                             = 1.29