(L. OBJ. 4, 5) Calculating breakeven point for two product lines; margin of safety [20 m...

(L. OBJ. 4, 5) Calculating breakeven point for two product lines; margin of safety [20 min]

The contribution margin income statement of Krazy Kustard Donuts for October 2012 follows:

Krazy Kustard sells 2 dozen plain donuts for every dozen custard-filled donuts, A dozen plain donuts sells for $6, with a variable cost of $2 per dozen. A dozen custard- filled donuts sells for $7, with a variable cost of $4.20 per dozen.

Requirements

1. Determine Krazy Kustard’s monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of costs: variable and fixed.

2. Compute Krazy Kustard’s margin of safety in dollars for October 2012.

3. If Krazy Kustard can increase the monthly sales volume by 10%, what will operating income be? (The sales mix remains unchanged.)