Gossimer, Inc., is a manufacturer of exercise equipment. The budgeted income statement for the coming year is as follows.

Required:
1. What is Gossimer’s variable cost ratio? Its contribution margin ratio?
2. Suppose Gossimer’s actual revenues are \($150,000\) 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 Gossimer earn in order to break even? What is the expected margin of safety? (Round your answers to the nearest dollar.)
4. How much sales revenue must Gossimer generate to earn a before-tax profit of $200,000? An after-tax profit of $120,000? Prepare a contribution margin income statement to verify the accuracy of your last answer.

Transcribed Image Text:

Sales Less: Variable expenses Contribution margin $900,000 342,000 $558,000 Less: Fixed expenses 363,537 Income before taxes $194,463 Less: Income taxes 77,785 Net income $116,678