Contribution Income Statement and Operating Leverage Florida Berry Basket harvests early-season strawberries for shipment throughout the eastern United States in March. The strawberry farm is maintained by a permanent staff of 10 employees and seasonal workers who pick and pack the strawberries. The strawberries are sold in crates containing 100 individually packaged one-quart containers. Affixed to each one- quart container is the distinctive Florida Berry Basket logo inviting buyers to "Enjoy the berry best strawberries in the world!" The selling price is $80 per crate, variable costs are $50 per crate, and fixed costs are $277,000 per year. In the year 2008, Florida Berry Basket sold 46,000 crates. (a) Prepare a contribution income statement for the year ended December 31, 2008. HINT: Use a negative sign with both "costs" answers. FLORIDA BERRY BASKET Income Statement For the Year Ended December 31, 2008 Sales Variable costs Contribution margin Fixed costs Net income $4 (b) Determine the company's 2008 operating leverage. (Round your answer to two decimal places.) (c) Calculate the percentage change in profits if sales decrease by 10 percent. (Round your answer to one decimal place.) % decrease (d) Management is considering the purchase of several berry-picking machines. This will increase annual fixed costs to $377,000 and reduce variable costs to $47.50 per crate. Calculate the effect of this acquisition on operating leverage and explain any change. (Round your answer to two decimal places.)

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 59P: Cost-Volume-Profit, Margin of Safety Victoria Company produces a single product. Last years income...

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Transcribed Image Text:Contribution Income Statement and Operating Leverage Florida Berry Basket harvests early-season strawberries for shipment throughout the eastern United States in March. The strawberry farm is maintained by a permanent staff of 10 employees and seasonal workers who pick and pack the strawberries. The strawberries are sold in crates containing 100 individually packaged one-quart containers. Affixed to each one- quart container is the distinctive Florida Berry Basket logo inviting buyers to "Enjoy the berry best strawberries in the world!" The selling price is $80 per crate, variable costs are $50 per crate, and fixed costs are $277,000 per year. In the year 2008, Florida Berry Basket sold 46,000 crates. (a) Prepare a contribution income statement for the year ended December 31, 2008. HINT: Use a negative sign with both "costs" answers. FLORIDA BERRY BASKET Income Statement For the Year Ended December 31, 2008 Sales 2$ Variable costs Contribution margin Fixed costs Net income $ (b) Determine the company's 2008 operating leverage. (Round your answer to two decimal places.) (c) Calculate the percentage change in profits if sales decrease by 10 percent. (Round your answer to one decimal place.) % decrease (d) Management is considering the purchase of several berry-picking machines. This will increase annual fixed costs to $377,000 and reduce variable costs to $47.50 per crate. Calculate the effect of this acquisition on operating leverage and explain any change. (Round your answer to two decimal places.)

Multiple-Level Break-Even Analysis
Nielsen Associates provides marketing services for a number of small manufacturing firms. Nielsen receives a commission of 10 percent of sales. Operating costs are as follows:
Unit-level costs
$0.02 per sales dollar
Sales-level costs
$300 per sales order
Customer-level costs $600 per customer per year
Facility-level costs
$60,000 per year
(a) Determine the minimum order size in sales dollars for Nielsen to break even on an order.
$ 0
(b) Assuming an average customer places five orders per year, determine the minimum annual sales required to break even on a customer.
$ 0
(c) What is the average order size in (b)?
$ 0
(d) Assuming Nielsen currently serves 100 customers, with each placing an average of five orders per year, determine the minimum annual sales required to break even.
$ 0
(e) What is the average order size in (d)?
$ 0

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