# Question

Refer to the information regarding Dana’s Ribbon World in E6-10.

Variable cost per rosette ...... $ 1.60

Sales price per rosette ...... 3.00

Total fixed costs per month .... 889.00

Required:

1. Suppose Dana’s would like to generate a profit of $800. Determine how many rosettes it must sell to achieve this target profit.

2. If Dana’s sells 1,100 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales.

3. Calculate Dana’s degree of operating leverage if it sells 1,100 rosettes.

4. Using the degree of operating leverage, calculate the change in Dana’s profit if unit sales drop to 935 units. Confirm this by preparing a new contribution margin income statement.

Variable cost per rosette ...... $ 1.60

Sales price per rosette ...... 3.00

Total fixed costs per month .... 889.00

Required:

1. Suppose Dana’s would like to generate a profit of $800. Determine how many rosettes it must sell to achieve this target profit.

2. If Dana’s sells 1,100 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales.

3. Calculate Dana’s degree of operating leverage if it sells 1,100 rosettes.

4. Using the degree of operating leverage, calculate the change in Dana’s profit if unit sales drop to 935 units. Confirm this by preparing a new contribution margin income statement.

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