The Delightful Donut owns and operates six doughnut outlets in and around Kansas City. You are given
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.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
Managerial Accounting Decision Making and Motivating Performance
ISBN: 978-0137024872
1st edition
Authors: Srikant M. Datar, Madhav V. Rajan