Delectable Donuts

Contribution Margin Income Statement

Month Ended August 31, 2016

Sales Revenue

$126,000

Variable Costs:

Cost of Goods Sold

$32,700

Selling Costs

17,200

Administrative Costs

500

50,400

Contribution Margin

75,600

Fixed Costs:

Selling Costs

21,600

Administrative Costs

7,200

28,800

Operating Income

$46,800

Delectable sells two dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4.00, with total variable cost of $1.60 per dozen. A dozen custard-filled donuts sells for $8.00, with total variable cost of $3.20 per dozen.

1.	Calculate the weighted-average contribution margin.
2.	Determine Delectable's monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of costs: variable and fixed.
3.	Compute Delectable's margin of safety in dollars for AugustAugust 2016
4.	Compute the degree of operating leverage for Delectable Donuts. Estimate the new operating income if total sales increase by 40%. (Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar. Assume the sales mix remains unchanged.)
5.	Prove your answer to Requirement 4 by preparing a contribution margin income statement with a 40% increase in total sales. (The sales mix remains unchanged.)