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 Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 5CE: Refer to Cornerstone Exercise 3.4 for data on Dohini Manufacturing Companys purchasing cost and...

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