The contribution margin income statement of Pepperpike Coffee for February follows:

Pepperpike Coffee

contribution margin Income Statement

For month ended February 29

Sales revenue......................................................................$103,000

Variable expenses:

Cost of goods sold............................................................... $28,000

Marketing expense ............................................................. $ 10,000

General and administrative expense...................................$ 3,000

41,000

contribution margin.............................................................$62,000

Fixed expenses:

Marketing expense.............................................................. $34,650

General and administrative expense.................................... $ 7,350

42,000

Operating income................................................................$20,000

Pepperpike 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

Requirements

1. Determine Pepperpike Coffee's monthly breakeven point in the numbers of small coffees and large coffees. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of expenses: variable and fixed.

2. Compute Pepperpike Coffee's margin of safety in dollars.

3. Use Pepperpike 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 the sales mix remains unchanged.