Skelly Company's controller prepared the following budgeted income statement for
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Sales Revenue
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the coming year:
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Approach; Variable
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Sales
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$ 315,000
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Cost Ratio;
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Less: Variable expenses
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126,000
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Contribution
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Contribution margin
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$189,000
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Margin Ratio;
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Less: Fixed expenses
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63,000
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Margin of Safety
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Profit before taxes
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$126,000
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LO2, LO5
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Less: Taxes
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37,800
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|
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Profit after taxes
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$ 88,200
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Required
1. What is Skelly's variable cost ratio? What is its contribution margin ratio?
2. Suppose Skelly's actual revenues are $46,000 more than budgeted. By how much will before-tax profits increase? Give the answer without preparing a new income statement.
3. How much sales revenue must Skelly earn to break even? What is the expected margin of safety?
4. How much sales revenue must Skelly generate to earn a before-tax profit of $90,000?
5. How much sales revenue must Skelly generate to earn an after-tax profit of $56,000? Prepare a contribution income statement to verify the accuracy of your answer.