Creative donuts sells two dozen plain donuts for every dozen custard-filled donu

Question

Creative donuts 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.

Creative Donuts

Contribution Margin Income Statement

Month Ended August 31, 2016

Sales Revenue: $129,000

Variables Costs: $51,600

Contribution Margin: $77,400

Fixed Costs: $28,800

Operating Income: $48,600

Weighted-average contribution margine per unit: $3.20

* The degree of operating levarage for Creative Donuts. Estimated new operating income if total sales increase by 10%.

Operating leverage: Contribution margin ($77,400) / Operating income ($48,600) = Degree of operating leverage (1.5926).

New operating income if total sales in crease by 10% = $56,340

Prove the above the above by preparing a contribution margin income statement with a 10% increase in total sales.

Creative Donuts

Contribution Margin Income Statement

Month Ended August 31, 2016

Sales Revenue:?

Variable Costs:?

Contribution Margin:?

Fixed Costs:?

Operating Income:?

Explanation / Answer

Creative Donuts Current Sales          129,000 Current Contribution            77,400 Contribution Margin 60.00% Variable cost 40.00% Contribution Marging Income statement Sales revenue          141,900 Less : Variable cost @40%            56,760 Contribtion margin            85,140 Less : Fixed costs            28,800 Net Operating Income            56,340 So the result is in line with DOL =1.5926

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