Question 7: (4 Points)

A company has a margin of safety of 25%, a contribution margin ratio of 30%, and sales of $1,000,000.

Required:

a) (1 Point) What is the break-even point?

b) (1 Point) What is the operating income?

c) (2 Points) If neither the relationship between variable costs and sales nor the amount of fixed costs is expected to change in the next year, how much additional operating income can be earned by increasing sales by $110,000?