Judy Boone just fulfilled a dream as she completed her first year as the owner of a rafting company. Unfortunately, her operation was not profitable. She has enough savings to get her through another year or two, but she realizes that she will have to start making a profit or give up her dream. Her company's income statement for the first year of operation follows.

Boone Rafting Company

Income Statement For the year ended December 31 2019 Revenue Less expenses: $1,572,000 Compensation to Guides 707,400 Meals for rafters 471,600 Depreciation of equipment 312,900 Advertising expense 75,000 T-shirts and hats for rafters 47,160 Salary of office manager 24,750 Insurance premium 5,775 Net loss $ (72,585)

Ms. Boone schedules two-week rafting trips in groups of 8 rafters. The fee for a trip includes rental of equipment, a guide, meals, T-shirts and hats. For 2019, Boone Rafting Company led 131 groups of 8 rafters each.

Required: 1. Identify the fixed and variable costs relative to the number of rafters. 2. Reconstruct the income statement using the contribution margin approach. 3. How many rafters are required for Ms. Boone to earn a $75,000 profit? 4. In discussions with her accountant, Ms. Boone was told to expect a 10% increase in fixed costs for the next year. In addition, she should plan for a 20% increase in variable costs. Based on these increases, how many rafters must Ms. Boone serve to earn the $75,000 desired profit if the price per rafter remains the same?