# Question

The Delightful Donut owns and operates six doughnut outlets in and around Kansas City. You are given the following corporate budget data for next year:

Revenues............. $ 10,500,000

Fixed costs ............. $ 1,400,000

Variable costs ............. $ 7,700,000

Variable costs change based on the number of doughnuts sold.

Required

Compute the budgeted operating income for each of the following deviations from the original budget data. (Consider each case independently.)

1. A 9% increase in contribution margin, holding revenues constant.

2. A 9% decrease in contribution margin, holding revenues constant.

3. A 3% increase in fixed costs.

4. A 3% decrease in fixed costs.

5. A 7% increase in units sold.

6. A 7% decrease in units sold.

7. A 9% increase in fixed costs and a 9% increase in units sold.

8. A 3% increase in fixed costs and a 3% decrease in variable costs.

Which of these alternatives yields the highest budgeted operating income? Explain why this is the case.

Revenues............. $ 10,500,000

Fixed costs ............. $ 1,400,000

Variable costs ............. $ 7,700,000

Variable costs change based on the number of doughnuts sold.

Required

Compute the budgeted operating income for each of the following deviations from the original budget data. (Consider each case independently.)

1. A 9% increase in contribution margin, holding revenues constant.

2. A 9% decrease in contribution margin, holding revenues constant.

3. A 3% increase in fixed costs.

4. A 3% decrease in fixed costs.

5. A 7% increase in units sold.

6. A 7% decrease in units sold.

7. A 9% increase in fixed costs and a 9% increase in units sold.

8. A 3% increase in fixed costs and a 3% decrease in variable costs.

Which of these alternatives yields the highest budgeted operating income? Explain why this is the case.

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