Contribution Income Statement and Operating
Leverage
Stateline Berry Farm harvests early-season blueberries for shipment
throughout Michigan and Illinois in July. The strawberry farm is
maintained by a permanent staff of 10 employees and seasonal
workers who pick and pack the blueberries. The blueberries are sold
in crates containing 100 individually packaged one-quart
containers. Affixed to each one-quart container is the distinctive
Stateline Berry Farm logo inviting buyers to "Enjoy the berry best
blueberries in the world!" The selling price is $90 per crate,
variable costs are $80 per crate, and fixed costs are $280,000 per
year. In the year 2017, Stateline Berry Farm sold 50,000
crates.
(a) Prepare a contribution income statement for the year ended
December 31, 2017. HINT: Use a negative sign with both "costs"
answers.
| STATELINE BERRY FARM Contribution Income Statement For the Year Ended December 31, 2017 |
|
|---|---|
| Sales | |
| Variable costs | |
| Contribution margin | |
| Fixed costs | |
| Net income | |
(b) Determine the company's 2017 operating leverage. (Round your
answer to two decimal places.)
Answer
(c) Calculate the percentage change in profits if sales decrease by
10 percent. (Round your answer to one decimal place.)
Answer
% decrease
(d) Management is considering the purchase of several berry-picking
machines. This will increase annual fixed costs to $375,000 and
reduce variable costs to $77.50 per crate. Calculate the effect of
this acquisition on operating leverage and explain any change.
(Round your answers two decimal places.)
Answer
## only Answer B,C,D please
| Part-a: Contribution Format Income Statement -Stateline Berry | |
| Sales (90X50000) | $4,500,000.00 |
| Variable cost (80*50000) | $4,000,000.00 |
| Contribution | $500,000.00 |
| Less: Fixed Cost | $280,000.00 |
| Net Income | $220,000.00 |
| Part-b |
| Operating Leverage = Contribution / Net Income |
| =(500000/220000)=2.27 |
| Part-c |
| % Change in Profit = DOLX % change in Change |
| 2.27X 10%= 22.7% |
| If Sales decrease by 10% , profit will be decreased by 22.7% |
| Part-d: Contribution Format Income Statement | |
| Sales (90X50000) | $4,500,000.00 |
| Variable cost (77.50*50000) | $3,875,000.00 |
| Contribution | $625,000.00 |
| Less: Fixed Cost | $375,000.00 |
| Net Income | $250,000.00 |
| Operating Leverage = Contribution / Net Income |
| =(625000/250000)=2.50 |
| Operating Leverage Will be increased from 2.27 to 2.50 times |
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