Answer and Explanation:
1. The computation of the number of cartons is shown below:-
Operating income = Sales - Variable expenses - Fixed expense
The break-even sales = Fixed expenses ÷ (Selling price - Variable cost)
= $1,095,000 ÷ (12 - 4)
= $136,875
2. The computation of the dollar amount of monthly sales is shown below:-
Contribution margin ratio = Contribution ÷ Sales
= $8 ÷ 12
= 66.6666%
Target sales in dollars = (Fixed expenses + Operating income) ÷ Contribution margin ratio
= ($1,095,000 + $312,000) ÷ 66.6666%
= $2,110,500
3. The preparation of the company's contribution margin income statement for June is shown below:-
Particulars Amount
Sales (455,000 × $12) $5,460,000
Less: Variable cost of goods sold
(4 × 71% × 455,000) -$,1292,200
Gross contribution margin $4,167,800
Less: Variable operating expenses -$527,800
(4 × 29% × 455,000)
Net contribution margin $3,640,000
Less: Fixed expenses -$1,095,000
Net operating income $2,545,000
4. The computation of June's margin of safety and operating leverage factor is shown below:-
Margin of safety (in dollars) = Total sales - Break-even sales
= $5,460,000 - ($12 × 136,875)
= $3,817,500
Operating leverage factor = Contribution margin ÷ Net operating income
= $3,640,000 ÷ $2,545,000
= 1.430
4. The computation of percentage will operating income is shown below:-
If volume rises by 11%, then operating income increase by
= 11% × 1.430
= 15.73%
Particulars Amount
Original volume of cartons $455,000
Add: Increase in volume $50,050 ($455,000 × 11%)
New volume of cartons $505,050
Unit contribution margin $8
New total contribution margin $4,040,400
($505,050 × $8)
Less: Fixed expense ($1,095,000)
New operating income $2,945,400
Operating income before
change in volume $2,545,000
Increase in operating income $400,400
Percentage change 15.73%
