Ayayai, Inc. manufactures souvenirs and sells the products to souvenir shops across Canada. Lisa Mckay is the new owner, and is concerned about the low margins. She would like to find a way to improve the company's profitability. The accountant provides her the following financial information: sales are $303,000, of which 70% is cost of goods sold. Cost of goods sold consists of direct materials (20%), direct labour (30%), and fixed manufacturing overhead (50%). Operating expenses consist of variable expenses (40%) and fixed expenses (60%). Ayayai pays a 40% tax rate and the net income is $16,440. To reduce the company's operating risks, McKay would like to review the company's operations from another perspective. She would like to know how much the company needs to generate in order to break-even. Based on the current cost structure, how sensitive is the profit to a sale volume increase of 5%. Your answer is partially correct. Try again. Prepare an income statement in the gross margin format. Ayayai, Inc. Gross Margin Income Statement Sales 303,000 TCost of Goods Sold Direct Materials 42420 Direct Labour 63630 106050 Fixed Manufacturing Overhead v X Earnings before Taxes 27400 Gross Margin 90900 $ Operating Expenses