StarSports, Inc., represents professional athletes and movie and television stars. The agency had revenue of $10,780,000 last year, with total variable costs of $5,066,600 and fixed costs of $2,194,200.

Required:

1. What is the contribution margin ratio for StarSports based on last year’s data? What is the break-even point in sales revenue?

2. What was the margin of safety for StarSports last year?

3. One of StarSports’s agents proposed that the firm begin cultivating high school sports stars around the nation. This proposal is expected to increase revenue by $150,000 per year, with increased fixed costs of $140,000. Is this proposal a good idea? Explain.