Please open attached file CH5 for the problem, and also use attached file P5-27A for your solution.
Calculating breakeven point for two product lines; margin of safety
The contribution margin income statement of Cosmic Donuts for March 2012follows:
Contribution Margin Income Statement
For the month of March 2012
Sales revenue $127,000
Cost of goods sold $32,400
Marketing costs 17,300
General and administrative cost 10,625 60,325
Contribution margin 66,675
Marketing costs 56,700
General and administrative cost 6,300 63,000
Operating income $3,675
Cosmic sells two dozens plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $6, with total variable cost of $2 per dozen custard-filled donuts sells for $8, with total variable cost of $5.50 per dozen.
1. Determine Cosmic'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.
2. Compute Cosmic's margin of safety in dollars for March 2012
3. If Cosmic can increase monthly sales volume by 10% what will operating income be? (The sales mix remains uncharged.)
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