The contribution margin income statement of Cosmic Coffee for February follows. Cosmic Coffee sells three small coffees for every large coffee. A small coffee sells for $3.00, with a variable expense of $1.50. A large coffee sells for $5.00, with a variable expense of $2.50.
1. Determine Cosmic Coffee’s monthly break-even point in numbers of small coffees and large coffees. Prove your answer by preparing a summary contribution margin income statement at the break-even level of sales. Show only two categories of expenses: variable and fixed.
2. Compute Cosmic Coffee’s margin of safety in dollars.
3. Use Cosmic Coffee’s operating leverage factor to determine its new operating income if sales volume increases by 15%. Prove your results using the contribution margin income statement format. Assume the sales mix remains unchanged.

  • CreatedApril 30, 2015
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