Try Spirit Calendars imprints calendars with college names. The company has fixe

ID: 2532022 • Letter: T

Question

Try Spirit Calendars imprints calendars with college names. The company has fixed expenses of $1,065,000 each month plus variable expenses of $ 3.50 per carton of calendars. Of the variable? expense, 65?% is cost of goods? sold, while the remaining 35?% relates to variable operating expenses. The company sells each carton of calendars for $13.50.

REQUIREMENTS:

Compute the number of cartons of calendars that

Try Spirit Calendars must sell each month to break even.??

2. Compute the dollar amount of monthly sales that the company needs in order to earn $304,000 in operating income? (round the contribution margin ratio to two decimal? places).??

3.Prepare the? company's contribution margin income statement for June for sales of 465,000 cartons of calendars.

4. What is? June's margin of safety? (in dollars)? What is the operating leverage factor at this level of? sales?

5. By what percentage will operating income change if? July's sales volume is 15?% ?higher? Prove your answer.

Explanation / Answer

Ans: Contribution margin per unit = $13.5-$3.50

= $10 per carton

1. Break -even point in unit= Fixed expenses/Contribution margin per carton

= $1065000/$10

= 106500 cartons

2. Operating income= $304000

Add: Fixed expenses=$1065000

Contribution =$1369000

Contribution ratio= $10/$13.5

= 74.07%

Monthly sales in $= $1369000/74.07%

= $1848252

3. Contribution margin Income Statement

Particulars

Sales

6277500

Less; Cost of goods sold

1057875

Gross margin

5219625

Less: Variable operating expenses

569625

Contribution margin

4650000

Less: Fixed expenses

1065000

Net operating income

$3585000

4. Margin of safety= Actual sales-Break even sales value

= $6277500-$1437750

= $4839750

Operating leverage= Contribution margin/net operating income

= 4650000/3585000

= 1.29