Question

Requirement 1. Determine the coffee​ shop'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. Begin by identifying the formula to compute the total breakeven point in units.​ (Abbreviations used: avg.​ = Average; CM​ = Contribution​ margin.) ( Fixed expenses + Operating income ) / ▼ = Breakeven sales in units Now calculate the​ weighted-average contribution margin per unit. ​(Round the​ weighted-average contribution margin per unit to the nearest​ cent.) Small Large Total Sales price per unit 2 4 Less: Variable expense per unit 1 2 Sales mix in units 75% 25% Contribution margin Contribution margin per unit Weighted-average contribution margin per unit The breakeven point is small cups and large cups of coffee. Prepare a summary contribution margin income statement to prove your answer above. ​(Complete all answer boxes. For amounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ cell.) Small Large Total Less: Less: Operating income

Requirement 2. Compute the coffee​ shop's margin of safety in dollars. Identify the formula to compute the margin of safety in dollars. - = Margin of safety in dollars The margin of safety in dollars is $ .

Requirement 3. Use the coffee​ shop's operating leverage factor​ (using the March contribution margin income​ statement) to determine its new operating income if sales volume increases 15 %. Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged. Identify the formula to compute the operating leverage factor. / = Operating leverage factor ​(Round your answer to two decimal​ places.) Krazy Kup Coffee's operating leverage factor is . If Krazy Kup Coffee can increase sales revenue by 15%, keeping the sales mix the same, operating income will be $ . Prepare a summary contribution margin income statement to prove your answer above. ​(For amounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ cell.) Krazy Kup Coffee Effect on Operating Income of 15% Increase in Sales Volume Current level Percent increase Dollar increase Sales revenue 15% Less: Variable expenses 15% Contribution margin Change in fixed expenses Operating income before sales increase Operating income after sales increase

Krazy Kup Coffee
Contribution Margin Income Statement
Month Ended March 31
Sales revenue				$100,000
Less variable expenses:
	Cost of goods sold		$34,500
	Marketing expense		13,000
	General and administrative expense		2,500	50,000
Contribution margin				$50,000
Less fixed expenses:
	Marketing expense		$21,250
	General and administrative expense		3,750	25,000
Operating income				$25,000

The contribution margin income statement of Krazy Kup Coffee for March follows: (Click the icon to view the contribution margin income statement.) Krazy Kup Coffee sells three small coffees for every large coffee. A small coffee sells for $2.00, with a variable expense of $1.00. A large coffee sells for $4.00, with a variable expense of $2.00. Read the requirements Requirement 1. Determine the coffee shop's monthly breakeverypoint 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. ve Begin by identifying the formula to compute the total breakeven point in units. (Abbreviations used: avg Average: CM Contribution margin.) Fred expertos . Operating income ) Weighed-avg. CM per unit - Breakeven sales in units Now calculate the weighted average contribution margin per unit (Round the weighted average contribution margin per unit to the nearest cont.)

Answer 1

Coffee
	Small	Large	Total
Sales price per unit	2	4
Variable expense per unit	1	2
Contribution Margin per unit	1	2
Sales mix	3	1	4
Contribution Margin	3	2	5
Weighted average CM per unit			1.25
Break even point = Total fixed costs/Weighted average CM
=25000/1.25
20000	cups
Small cups	15000
Large cups	5000
CM Income Statement
	Small	Large	Total
Sales Revenue	30,000	20,000	50,000
Variable costs	15,000	10,000	25,000
Contribution Margin	15,000	10,000	25,000
Fixed costs			25,000
Operating Income			-
Margin of Safety = Total sales - break even sales
=100,000-50,000 = $50,000
Operating leverage factor = CM/Operating Income
=50,000/25000
=2 times
Increase in operating income = DOL*Increase in sales
=2*15% = 30%
i.e. Operating income will be	32500
	Current level	% increase	Dollar Increase
Sales	100000	15	15000
Less: Variable expenses	50000	15	7500
CM	50000	15	7500
Change in fixed expenses			0
Operating income before sales increase			25000
After increase			32500