Elina Siljander owns Elina’s Stained Glass in Helsinki, Finland. The business produces and sells three different types of stained glass windows: small, medium, and large. Elina has two full-time employees who work regular schedules to cut glass and assemble the windows. She borrowed money from the bank to start the business and pay living expenses. She is concerned that her cash flows might not be high enough either to pay herself or to repay the bank loan. She would like to generate approximately €10,000 in pretax earnings each month to cover her living expenses and repay the loan.

The following revenue and cost information covers the past four months:

REQUIRED

A. Develop a cost function for Elina’s Stained Glass.

B. Determine the level of revenue Elina’s Stained Glass must generate to achieve the targeted profit of €10,000 per month.

C. Calculate Elina’s degree of operating leverage for September.

D. Interpret Elina’s degree of operating leverage.

E. Create a CVP graph that shows the breakeven point, target profit, and margin of safety.

F. Write a memo to Elina with recommendations about ways she might achieve her goals.

Transcribed Image Text:

July une 9,050 1,745 3,880 2,000 525 900 August September Revenues Raw materials and supplies Labour Rent Miscellaneous Profit 10,53112,946 16,116 3,074 4,246 2,000 747 2,879 2,433 4,041 2,000 4,029 4,282 2,200 793 4,812 701 1,356