SALES REVENUE APPROACH, VARIABLE COST RATIO, CONTRIBUTION MARGIN RATIO
Rezler Company's controller prepared the following budgeted income statement for the coming year:
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Sales
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$315,000
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Less: Variable expenses
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141,750
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Contribution margin
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$173,250
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Less: Fixed expenses
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63,000
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Operating income
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$110,250
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Required:
1. What is Rezler's variable cost ratio? What is its contribution margin ratio?
2. Suppose Rezler's actual revenues are $30,000 more than budgeted. By how much will operating income increase? Give the answer without preparing a new income statement.
3. How much sales revenue must Rezler earn to break even? Prepare a contribution margin income statement to verify the accuracy of your answer.
4. What is Rezler's expected margin of safety?
5. What is Rezler's margin of safety if sales revenue is $280,000?