Caf Java is a local coffee shop owned by Arif Bayu, a coffee aficionado. Arif employs his long-time friend, Ken Baker, to manage the daily operations of the shop. Concerned with rising input costs and the inability to pass these costs along to customers, Arif is focused on improving operational efficiency. To achieve this goal, Arif promised Ken an all-expenses paid trip to Cancun, Mexico if the gross margin percentage for 2019 is maintained at or above 20%.

At the beginning of 2020, Ken approached Arif with exciting news: he reported that he had managed to keep gross margin percentage for 2019 above the targeted level. However, Arif was concerned that operating income for the year was negative even though the original 2019 budget projected positive operating income.

Arif has asked for help to reconcile the surprising results and provided the following information.

Original (Static) budget:

• 156,000 cups of coffee produced and sold at $3.60 per cup
• Cost of goods sold of $2.80 per cup (variable cost portion = $2.00 per cup, fixed cost portion = $0.80 per cup)
• Total selling and administrative expenses of $70,500

Actual results:

• 192,000 cups of coffee produced and sold at $3.60 per cup
• Cost of goods sold of $2.75 per cup (variable cost portion = $2.10 per cup, fixed cost portion = $0.65 per cup)
• Operating profit of $9,200

Required:

1. Did Ken meet the gross margin percentage target to earn the trip to Cancun? Show your calculation (2 points)