The contribution margin income statement of Krazy Kustard Donuts for August 2016 follows:
Krazy Kustard sells four 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.
1. Calculate the weighted-average contribution margin.
2. Determine Krazy Kustard’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.
3. Compute Krazy Kustard’s margin of safety in dollars for August 2016.
4. Compute the degree of operating leverage for Krazy Kustard Donuts. Estimate the new operating income if total sales increase by 40%. (Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar.
Assume the sales mix remains unchanged.)
5. Prove your answer to Requirement 4 by preparing a contribution margin income statement with a 40% increase in total sales. (The sales mix remains unchanged.)