Sales Revenue Approach, Variable Cost Ratio, Contribution Margin Ratio

Arberg Companys controller prepared the following budgeted income statement for the coming year:

	Required:
Sales	$415,000
Variable cost	302,950
Contribution margin	$112,050
Fixed cost	64,800
Operating income	$47,250
1.	What is Arbergs variable cost ratio? What is its contribution margin ratio?
2.	Suppose Arbergs actual revenues are $30,000 more than budgeted. By how much will operating income increase? Give the answer without preparing a new income statement.
3.	How much sales revenue must Arberg earn to break even? Prepare a contribution margin income statement to verify the accuracy of your answer.
4.	What is Arbergs expected margin of safety?
5.	What is Arbergs margin of safety if sales revenue is $380,000?

1. What is Arbergs variable cost ratio? What is its contribution margin ratio?

Variable cost ratio	%
Contribution margin ratio	%

2. Suppose Arbergs actual revenues are $30,000 more than budgeted. By how much will operating income increase?

3(a) How much sales revenue must Arberg earn to break even?

3(b) Prepare a contribution margin income statement to verify the accuracy of your answer. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Arberg Company

Contribution Margin Income Statement

For the Coming Year

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4. What is Arbergs expected margin of safety?

5. What is Arbergs margin of safety if sales revenue is $380,000?