Lambert produces and sells an economy line of ski parkas. The budgeted income statement for the coming year is as follows.

Required:
1. What is Lambert's variable cost ratio? Its contribution margin ratio?
2. Suppose Lambert's actual revenues are $60,000 greater 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 Lambert earn in order to break even? What is the ex¬
pected margin of safety?
4. How much sales revenue must Lambert generate to earn a before-tax profit of $100,000?
An after-tax profit of $84,000? Prepare a contribution income statement to verify the ac¬
curacy of your last answer.

Transcribed Image Text:

Sales Less: Variable expenses Contribution margin Less: Fixed expenses Profit before taxes Less: Taxes Net income $600,000 400,000 $200,000 120,000 $ 80,000 24,000 $ 56,000