(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 Cosmic Donuts for March 2012 follows:

Cosmic sells 2 dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $6, with total variable cost of $2 per dozen. A dozen custard-filled donuts sells for $8, with total variable cost of $5.50 per dozen.

Requirements

1. Determine Cosmic’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 Cosmic’s margin of safety in dollars for March 2012.

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