Sales Revenue Approach, Variable Cost Ratio, Contribution Margin Ratio
Response to the following problem:
Arberg Company's controller prepared the following budgeted income statement for the coming year:
Sales $ 415,000
Total variable cost 302,950
Contribution margin $112,050
Total fixed cost 64,800
Operating income $ 47,250
Required:
1. What is Arberg's variable cost ratio? What is its contribution margin ratio?
2. Suppose Arberg's actual revenues are $30,000 more than budgeted. By how much will oper- ating income increase? Give the answer without preparing a new income statement.
3. How much sales revenue must Arberg earn to break even? Prepare a contribution margin income statement to verify the accuracy of your answer.
4. What is Arberg's expected margin of safety?
5. What is Arberg's margin of safety if sales revenue is $380,000?