Question:
Calculating breakeven point for two products; margin of safety The contribution margin income statement of Delectable Donuts for August 2012 follows:
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DELECTABLE DONUTS
Contribution Margin Income Statement
For the Month of August 2012
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Sales revenue
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$ 150,000
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Variable costs:
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Cost of goods sold
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15,000
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Marketing costs
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4,000
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$ 90,000
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Contribution margin
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$ 41,000
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60,000
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Marketing costs
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12,600
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$ 39,600
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Operating income
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37,800
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50,400
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Delectable sells four dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4, with total variable cost of $1.60 per dozen. A dozen custard-filled donuts sells for $5, with total variable cost of $2 per dozen.
Requirements
1. Calculate the weighted-average contribution margin.
2. Determine Delectable'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.
3. Compute Delectable's margin of safety in dollars for August 2012.
4. If Delectable can increase monthly sales revenue from August's level by 20%, what will operating income be? (The sales mix remains unchanged.)