Based in Italy, Datura, Ltd., is an international importer-exporter of pottery with distribution centers in the United States, Europe, and Australia. The company was very successful in its early years, but its profitability has since declined. As a member of a management team selected to gather information for Datura's next strategic planning meeting, you have been asked to review its most recent contribution margin income statement for the year ended December 31, 2010, which appears below.
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Datura, Ltd.
Contribution Margin Income Statement
For the Year Ended December 31, 2010
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Sales revenue
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€13,500,000
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Less variable costs
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Purchases
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€6,000,000
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Distribution
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2,115,000
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Sales commissions
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1,410,000
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Total variable costs
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9,525,000
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Contribution margin
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€ 3,975,000
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Less fixed costs
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Distribution
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€ 985,000
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Selling
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1,184,000
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General and administrative
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871,875
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Total fixed costs
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3,040,875
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Operating income
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€ 934,125
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In 2010, Datura sold 15,000 sets of pottery.
1. For each set of pottery sold in 2010, calculate the (a) selling price, (b) variable purchases cost, (c) variable distribution cost, (d) variable sales commission, and (e) contribution margin.
2. Calculate the breakeven point in units and in sales euros.
3. Historically, Datura's variable costs have been about 60 percent of sales. What was the ratio of variable costs to sales in 2010? List three actions Datura could take to correct the difference.
4. How would fixed costs have been affected if Datura had sold only 14,000 sets of pottery in 2010?