Trang Nguyen owns Trang’s Stained Glass in Sydney. The business produces and sells three different types of stained glass windows: small, medium and large. Trang 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 pre-tax profit 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 Trang’s Stained Glass.

(b) Determine the level of revenue Trang’s Stained Glass must generate to achieve the targeted profit of $10 000 per month.

(c) Calculate Trang’s degree of operating leverage for September.

(d) Interpret Trang’s degree of operating leverage.

(e) Create a CVP graph showing the breakeven point, targeted profit and margin of safety.

(f) Write a memo to Trang with recommendations about ways she might achieve her goals.

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June July August September Revenues $9 050 $10531 $12 946 $16116 Raw materials and supplies 1745 2433 3074 4 029 Labour 3880 4041 4246 4 282 Rent 2000 2 000 2 000 2200 Miscellaneous 525 701 747 793 Profit $ 900 $ 1 356 $ 2879 $ 4812