Question

4. The contribution margin income statement of Bountiful Bean Coffee for February follows: Bountiful Bean Coffee Contribution Margin Income Statement For the Month Ended February 29 Sales revenue $85,000 Variable expenses Cost of goods sold $28,000 Marketing expense 9,000 General and administrative expense 3,000 40,000 Contribution margin 45,000 Fixed expenses: Marketing expense 12,375 2,625 15,000 General and administrative expense $30,000 Operating income 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. A. Determine Bountiful Bean Coffee's monthly break-even point in numbers of small coffees and large coffees. 14 points

Answer 1

	Small	Large	Total
Selling price per unit	2	4
Variable cost per unit	1	2
Contribution Margin per unit	1	2
Sales mix	3	1	4
Contribution Margin	3	2	5
Weighted average Contribution Margin			1.25
A.Monthly break even point = Fixed costs/Weighted average CM Per unit
=15000/1.25
12000	units
Small	9000	units
Large	3000	units
B.Margin of safety in Dollars = Total Sales - Break even sales
=85000-9000*2-3000*4
55,000
C.Operating leverage factor = Contribution Margin/Operating Income
=45000/30000
1.5	times
Increase in operating income = Increase in sales*DOL
=15%*1.5
22.50%
Hence, new operating income	36,750
D.Total variable cost at break even = Sales - Fixed costs
15,000