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Expert-verified Found in: Page 1132 ### Horngren'S Financial And Managerial Accounting

Book edition 6th
Author(s) Tracie L. Miller-Nobles, Brenda L. Mattison
Pages 992 pages
ISBN 9780134486833

# The contribution margin income statement of Sugar Lips Donuts for August 2018 follows: Sugar Lips sells three dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4.00, with total variable cost of$1.80 per dozen. A dozen custard-filled donuts sells for $8.00, with total variable cost of$3.60 per dozen. Requirements 1. Calculate the weighted-average contribution margin. 2. Determine Sugar Lips’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 Sugar Lips’s margin of safety in dollars for August 2018. 4. Compute the degree of operating leverage for Sugar Lips Donuts. Estimate the new operating income if total sales increase by 30%. (Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar. Assume the sales mix remains unchanged.) 5. Prove your answer to Requirement 4 by preparing a contribution margin income statement with a 30% increase in total sales. (The sales mix remains unchanged.)

1. Weighted average contribution equals $2.75. 2. Breakeven for plain donuts equals 9,000 units and custard filled donuts equals 3,000 units. 3. Margin of safety equals$65,000
4. Degree of operating leverage equals1.9231, and revised operating income equals $56,374. 5. Revised operating income equals$56,375
See the step by step solution

## Step 1: (1) Computation of weighted average contribution margin

 Plain donuts Custard filled donuts Total Selling price $4$8 Variable cost $1.80$3.60 Contribution per unit $2.2$4.4 Sales mix X 3 X 1 4 Total contribution $6.6$4.4 $11 Weighted average contribution margin$2.75

## Step 2: (2) Computation of breakeven point  Contribution margin income statement

 Net sales revenue (9,000 x $4)+($3,000x$8)$60,000 Variable cost (9,000 x $1.80)+($3,000x$8)$27,000 Contribution Margin $33,000 Fixed cost$33,000 Operating income $0 ## Step 3: (3) Calculation of margin of safety  ## Step 4: Calculation of operating leverage  ## Step 5: Statement showing contribution margin income statement with a 30% increase in total sales  Net sales revenue (125,000 x (1+30%)$162,500 Variable cost ($56,250 x (1+30%)$73,125 Contribution margin $89,375 Fixed costs$33,000 Operating income \$56,375 ### Want to see more solutions like these? 