Question

Michael's Mugs imprints novelty drinking mugs with logos and sells them in boxes. For each box of novelty drinking mugs, the company generates $52.50 of operating income. Its fixed costs per month are $375,000 and variable costs amount to $11.25 per box. For the month of April, Michael's Mugs sold 16,000 boxes. a) Create the contribution margin statement for April. b) Calculate the company's degree of operating leverage. Round to 2 decimal places. $1,215,000 / $840,000 = 1.45 c) Using the company's degree of operating leverage, by what percentage will operating income change if the volume of sales next month will increase to 20,000 units? Percentage increase in sales = ($20,000 - $16,000) / $16,000 = 25.00% Increase in operating income = 25.00% x 1.45 = 36.25% d) What is the breakeven point in units for the company?

could you please show me the steps for each part?

Answer 1

PART A- Contribution margin statement for April

PARTICULAR	AMOUNT
Sales	$1,395,000
Less: Variable Cost [16,000 X 11.25]	$180,000
Contribution	$1,215,000
Less: Fixed Cost	$375,000
EBIT/Operating Income [16,000 X 52.50]	$840,000

PART B-

PART C-

PART D-