The contribution margin income statement of Cosmic Donuts
Subject: Business / Finance
Question
Calculating breakeven point for two product lines; margin of safety
The contribution margin income statement of Cosmic Donuts for March 2012follows:
COSMIC DONUTS
Contribution Margin Income Statement
For the month of March 2012
Sales revenue
Variable costs:
Cost of goods sold
Marketing costs
General and administrative cost
Contribution margin
Fixed costs:
Marketing costs
General and administrative cost
Operating income $127,000
$32,400
17,300
10,625 60,325
66,675
56,700
6,300 63,000
$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.
Requirements
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.)
