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Computing Operating Leverage Suppose the Coffee Bean has a new shop in a Cambridge village shopping center that sells high-end teas and coffees. Further, suppose it has added smoothie drinks to its product line. Below are the assumed sales and cost data for the company. Coffee Tea Smoothie Sales price per (12 oz.) serving Variable cost per serving $1.35 $1.25 0.60 0.45 $1.95 0.75 $16,000 Fixed costs per month Assume that the company sells each month an average of 12,000 servings of coffee, 7,500 servings of tea, and 4,500 servings of smoothies. REQUIRED a. Calculate Coffee Bean's operating leverage ratio Numerator Contribution margin + Denominator Pre-tax profit 0 x Result Operating leverage ratio 0 x b. If sales increase by 20%, by how much will before-tax profit be expected to change? $ 0 x c. If sales decrease by 20%, by how much will before-tax profit be expected to change? $ 0 Note: Use a negative sign with your answer to indicate a decrease in profits.

Computing Operating Leverage Suppose the Coffee Bean has a new shop in a Cambridge village shopping center that sells high-end teas and coffees. Further, suppose it has added smoothie drinks to its product line. Below are the assumed sales and cost data for the company. Coffee Tea Smoothie Sales price per (12 oz.) serving Variable cost per serving $1.35 $1.25 0.60 0.45 $1.95 0.75 $16,000 Fixed costs per month Assume that the company sells each month an average of 12,000 servings of coffee, 7,500 servings of tea, and 4,500 servings of smoothies. REQUIRED a. Calculate Coffee Bean's operating leverage ratio Numerator Contribution margin + Denominator Pre-tax profit 0 x Result Operating leverage ratio 0 x b. If sales increase by 20%, by how much will before-tax profit be expected to change? $ 0 x c. If sales decrease by 20%, by how much will before-tax profit be expected to change? $ 0 Note: Use a negative sign with your answer to indicate a decrease in profits.

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 84PSB
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Computing Operating Leverage Suppose the Coffee Bean has a new shop in a Cambridge village shopping center that sells high-end teas and coffees. Further, suppose it has added smoothie drinks to its product line. Below are the assumed sales and cost data for the company. Coffee Tea Smoothie Sales price per (12 oz.) serving Variable cost per serving $1.35 $1.25 0.60 0.45 $1.95 0.75 $16,000 Fixed costs per month Assume that the company sells each month an average of 12,000 servings of coffee, 7,500 servings of tea, and 4,500 servings of smoothies. REQUIRED a. Calculate Coffee Bean's operating leverage ratio Numerator Contribution margin + Denominator Pre-tax profit 0 x Result Operating leverage ratio 0 x b. If sales increase by 20%, by how much will before-tax profit be expected to change? $ 0 x c. If sales decrease by 20%, by how much will before-tax profit be expected to change? $ 0 Note: Use a negative sign with your answer to indicate a decrease in profits.
Transcribed Image Text:Computing Operating Leverage Suppose the Coffee Bean has a new shop in a Cambridge village shopping center that sells high-end teas and coffees. Further, suppose it has added smoothie drinks to its product line. Below are the assumed sales and cost data for the company. Coffee Tea Smoothie Sales price per (12 oz.) serving Variable cost per serving $1.35 $1.25 0.60 0.45 $1.95 0.75 $16,000 Fixed costs per month Assume that the company sells each month an average of 12,000 servings of coffee, 7,500 servings of tea, and 4,500 servings of smoothies. REQUIRED a. Calculate Coffee Bean's operating leverage ratio Numerator Contribution margin + Denominator Pre-tax profit 0 x Result Operating leverage ratio 0 x b. If sales increase by 20%, by how much will before-tax profit be expected to change? $ 0 x c. If sales decrease by 20%, by how much will before-tax profit be expected to change? $ 0 Note: Use a negative sign with your answer to indicate a decrease in profits.
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