The contribution margin income statement of Extreme Coffee for February
The contribution margin income statement of Extreme Coffee for February follows. Extreme Coffee sells three small coffees for every large coffee. A small coffee sells for $2, with a variable expense of $1. A large coffee sells for $4, with a variable expense of $2.
Requirements
1. Determine Extreme Coffee’s monthly break-even point in the 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 Extreme Coffee’s margin of safety in dollars.
3. Use Extreme Coffee’s operating leverage factor to determine its new operating income if sales volume increases 15%. Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged.
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