Paragon Company's controller prepared the following budgeted income statement for the coming year: Sales.........................................$315,000 Less: Variable expenses....................141,750

Question:

Paragon Company's controller prepared the following budgeted income statement for the coming year:

Sales.........................................$315,000

Less: Variable expenses....................141,750

Contribution margin.........................173,250

Less: Fixed expenses.........................63,000

Operating income.........................$110,250

Required:

1. What is Paragon's variable cost ratio? What is its Contribution margin ratio?

2. Suppose Paragon'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 Paragon earn to break even? Prepare a Contribution margin income statement to verify the accuracy of your answer.

4. What is Paragon's expected margin of safety?

5. What is Paragon's margin of safety if sales revenue is $280,000?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...