Skysong, 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 companys profitability. The accountant provides her the following financial information: sales are $ 227,000, of which 60% 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%). Skysong pays a 40% tax rate and the net income is $ 16,500. To reduce the companys operating risks, McKay would like to review the companys 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%.

Prepare an income statement in the contribution margin format.