The contribution margin income statement of Burger Queen for January is given below: BQ sells three small burgers for every medium burger (3:1) A small burger sells for $3.00, with a variable expense of $1.50. A medium burger sells for $5 .00, with a variable expense of $2.50. Contribution Margin Income Statement Month Ended January 31 Sales revenue $ 144,000 Less variable expenses: Cost of goods sold $ 57,000 Marketing expense 12,000 General and administrative expense 3,000 72,000 Contribution margin $ 72,000 Less fixed expenses: Marketing expense $ 35,700 General and administrative expense 6,300 42,000 Operating income $ 30,000 1. Determine the Burger Queen’s monthly breakeven point in the numbers of small burgers and medium burgers. Provide a Weighted-Average Contribution Margin per Unit schedule. ``````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of expenses: variable and fixed. 2. Compute the Burger Queen's margin of safety in dollars. 3. Use the BQ's operating leverage factor (using the January contribution margin income statement) to determine its new operating income if sales volume increases 12%. Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
The contribution margin income statement of Burger Queen for January is given below:
BQ sells three small burgers for every medium burger (3:1)
A small burger sells for $3.00, with a variable expense of $1.50. A medium burger sells for $5 .00, with a variable expense of $2.50.
Contribution Margin Income Statement
Month Ended January 31
Sales revenue $ 144,000
Less variable expenses:
Cost of goods sold $ 57,000
Marketing expense 12,000
General and administrative expense 3,000 72,000
Contribution margin $ 72,000
Less fixed expenses:
Marketing expense $ 35,700
General and administrative expense 6,300 42,000
Operating income $ 30,000
1. Determine the Burger Queen’s monthly breakeven point in the numbers of small burgers and medium burgers. Provide a Weighted-Average Contribution Margin per Unit schedule. ``````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of expenses: variable and fixed.
2. Compute the Burger Queen's margin of safety in dollars.
3. Use the BQ's operating leverage factor (using the January contribution margin income statement) to determine its new operating income if sales volume increases 12%. Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged.
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