SALES REVENUE APPROACH, VARIABLE COST RATIO, CONTRIBUTION MARGIN RATIO Rezler 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:

. What is Rezler’s variable cost ratio? What is its contribution margin ratio?

. Suppose Rezler’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.

. How much sales revenue must Rezler earn to break even? Prepare a contribution margin income statement to verify the accuracy of your answer.

. What is Rezler’s expected margin of safety?

. What is Rezler’s margin of safety if sales revenue is $280,000?

Exercise