Determine the annual margin of safety in sales

Question

In the year 2012, Wiggins Processing Company had the following contribution income statement.

Sales   $1,000,000

Variable costs

Cost of goods sold              $420,000

Selling and administrative   $200,000        ($620,000)

Contributions margin                                   $380,000

Fixed Costs

Manufacturing overhead   $205,000

Selling and administrative $80,000             ($285,000)

Before tax profit                                            $95,000

Income Taxes (36%)                                    ($34,200)

After-Tax profit                                              $60,800

1. Determine the annual break-even point in sales dollars.
2. Determine the annual margin of safety in sales dollars.
3. What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $57,000?
4. With the current cost structure, including fixed costs of $285,000, what dollar sales volume is required to provide an after-tax net income of $200,000?
5. Prepare an abbreviated contribution income statement to verify that the solution to requirement. (D) Will provide the desired after-tax income.