5-6 Orlando's Relax & Dream, is a bar and grill in downtown Burlington, VT. It has the following income statements from the past two years of operations. 20x1 20x2 Sales revenue $250,000 $312,500 Cost of goods sold 100.000 125.000 Gross profit... 150,000 187.500 Selling, general and administrative expenses. 80,000 87.500 Income before income taxes. 70,000 100,000 Income taxes 21,000 30.000 Net income S 49.000 S 70.000 Instructions: 1. Estimate the cost function for each expense line item. 2. Prepare a contribution income statement for the most recent year, 20x2. 3. Assuming the same average sales mix experienced the last two years, what amount of sales revenue is required for Orlando's to earn a $100,000 pretax profit next year? 4. Again assuming the same sales mix, what amount of sales revenue is required for Orlando's to earn an after-tax profit next year of $82,600? 5. The 20x2 segmented income statements (contribution margin format) for the bar and grill are as follows: Bar Grill Sales revenue $187,500 $125.000 Variable costs: I Cost of goods sold 93,750 31,250 Selling, general and administrative expenses 22.500 15.000 Total 116.250 46.250 Contribution margin 71,250 78,750 Fixed costs: Selling, general and administrative expenses 30.000 20,000 Income before income taxes, 41,250 58,750 Income taxes 12.375 17.625 Net income $ 28,875 $ 41.125 Norbert, the owner of Orlando's, is troubled that the grill side of operations is doing so much better than the bar side, yet only half of the bar patrons also order food. After heavy research he knows that he can't charge more for drinks or food than his competition, so his plan is to spend $10,000 on an advertising campaign which he believes will bring in 10% more foot traffic to the establishment. Should he go forward with the advertising campaign