Contribution margin, gross margin, and margin of safety Mirabella Cosmetics manufactures and sells a face cream to small ethnic stores in the greater New York area. It presents the monthly operating income statement shown here to George Lopez, a potential investor in the business. Help Mr. Lopez understand Mirabella?s cost structure.

Contribution margin, gross margin, and margin of safety Mirabell" class="fr-fic fr-dii">

If you want to use Excel to solve this exercise, go to the Excel Lab at www.prenhall.com/horngren/cost13e download the template for Exercise 3-31.

1. Recast the income statement to emphasize Contribution margin.

2. Calculate the Contribution margin percentage and breakeven point in units and revenues for June 2008.

3. What is the margin of safety (in units) for June 2008?

4. If sales in June were only 8,000 units and Mirabella?s tax rate is 30%, calculate its net income.

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D. Mirabella Cosmetics Operating Income Statement, June 2008 3 Units sold 10,000 $100,000 4 Revenues 5 Cost of goods sold Variable manufacturing costs $55,000 Fixed manufacturing costs 20,000 Total 75,000 9 Gross margin 10 Operating costs Variable marketing costs 25,000 $ 5,000 11 Fixed marketing & administration costs Total operating costs 10,000 12 15,000 $ 10,000 13 14 Operating income 2. 00