The following income statement is provided for Central Coffee Co. for February 2

Question

The following income statement is provided for Central Coffee Co. for February 2018. The company roasted and sold 25,000 pounds of coffee for the month. 1. Sales $ 250,000 Cost of goods sold Direct materials (coffee beans) Direct materials (packaging) Direct labor Variable overhead Fixed overhead 75,000 7,500 25,000 5,000 75,000 Gross profit Selling, general, and administrative Net operating income (loss) 187,500 62,500 73,500 S (11,000) Required Revise the monthly income statement to present a contribution margin format. (Assume that selling, general, and administrative expenses are all fixed.) a. Sales: 2So,Dou b. Calculate the contribution margin per unit and the contribution margin ratio. c. Determine the company's break-even point in pounds of coffee and sales revenues. 2

Explanation / Answer

a) Prepare contribution margin income statement :

b) Contribution margin per unit = 137500/25000 = 5.5 per unit

Contribution margin ratio = 5.5*100/10 = 55%

c) Break even point in pounds = 148500/5.5 = 27000 pounds

Break even sales = 27000*10 = 270000

Sales 250000 Less: Variable expenses Direct material (coffee beans) (75000) Direct material (Packaging) (7500) Direct labour (25000) Variable overhead (5000) Total variable cost (112500) Contribution margin 137500 Less: FIxed cost Fixed overhead (75000) Fixed selling and administrative expenses (73500) Total fixed expenses (148500) Net operating income (11000)

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