Reference no: EM132724810

Question - Contribution Income Statement and Operating Leverage

Willamette Valley Fruit Company started as a small cannery-style operation in 1999. The company now processes, on average, 20 million pounds of berries each year. Flash-frozen berries are sold in 30 pound packs to retailers. Assume 650,000 packs were sold for $75 each last year. Variable costs were $42 per pack and fixed costs totaled $14,250,000.

(a) Show a contribution income statement for the year ended December 31. HINT: Use a negative sign with both "costs" answers.

(b) Determine the company's 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.)

(d) Management is considering the purchase of several new pieces of packaging equipment. This will increase annual fixed costs to $15,500,000 and reduce variable costs to $40 per crate. Calculate the effect of this acquisition on operating leverage and explain any change. (Round your answers two decimal places.)