P7-66A CVP analysis at a multiproduct firm ( Learning objective 4 & 5)

The contribution margin income statement of Morgantown Coffe for October follows:

Morgan Coffee Contribution Margin Income Statement Month Ended October 31
Sales revenue		$ 95,000
Less variable expense:
Cost of goods sold	$ 33,500
Marketing expense	$ 12,000
General administrative expense	$ 2,000	$ 47,500
Contribution margin		$ 47,500
Less fixed expenses
Marketing expense	$ 19,125
General administrative expense	$ 3,375	$ 22,500
Operating income		$ 25,000

Morgantown Coffe sells three small coffees for every large coffee.
A small coffee sells for $2.00, with a variable expense of $1.00.
A large coffee sells for $4.00, with a variable expense of $2.00.
Requirements
1. Determine the coffee shop's monthly breakeven point in the numbers of small coffees amd large coffees.
Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales.
Show only two categories of expenses: Variable and fixed.
2. Compute the coffee shop's margin of safety in dollars.
3 Use the coffee shop's operating leverage factor (using the October contributionmargin income statement) to
determine its new operating income if sales volume increases 13%. Prove your results
using th contribution margin income statement format. Assume that sales mix remains unchanged.