Question

College SpiritCollege Spirit

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

$ 1 comma 065 comma 000$1,065,000

each month plus variable expenses of

$ 3.50$3.50

per carton of calendars. Of the variable? expense,

7575?%

is cost of goods?sold, while the remaining

2525?%

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

$ 13.50$13.50.

Read the

requirements

LOADING...

.

Requirement 1. Compute the number of cartons of calendars that

College SpiritCollege Spirit

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

College SpiritCollege Spirit

Calendars needs in order to earn

$ 304 comma 000$304,000

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 $304,000 in operating income is $

.

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

460 comma 000460,000

cartons of calendars.

??

College Spirit
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

1111?%

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

If volume increases 11%, 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		%

Choose from any list or enter any number in the input fields and then continue to the next question.

Answer 1

Requirement 1

Sales - variable expenses - fixed expenses = operating income

Break even units = fixed costs / contribution margin per unit

contribution margin per unit = selling price - variable expenses per unit

Break even units = 1065000 / 13.5 - 3.5

= 1,06,500 cartons

Requirment 2

Target sales in dollars = (fixed costs + target profit) / contribution margin ratio

= (1065000 + 304000) / 74.07%

= $18,48,150

Therefore monthly sales needed to earn a tagret profit of $304000 is $18,48,150

Requirement 3

Contribution margin statement for sale of 460000 cartons

College Spirit
Contribution Margin Income Statement
Month ended June 30
Sales	$62,10,000
Less: variable expenses	$16,10,000
Contribtuion margin	$46,00,000
Less: fixed expenses	$10,65,000
Operating profit	$35,35,000

Requiremnt 4

Margin of safety = actual sales - break even sales

= 6210000 - 1437750

= $47,72,250

Operating leverage factor = contribution margin / (contribtuion margin - fixed costs)

= 4600000 / (4600000 - 1065000)

= 1.301

Requirement 5

If volume increases by 11%, then the operating income will increase by 14.31%

Working:

Original volume	4,60,000
Add: increase in volume	11%
New volume	5,10,600
multiplied by:contribution margin	$10
New total contribuiton margin	$51,06,000
Less: fixed expenses	$10,65,000
New Operating profit	$40,41,000
vs. operating income before change in volume	$35,35,000
increase in operating income	$5,06,000
Percentage change	14.31%