Vines and Daughter manufactures and sells swimsuits for $40 each. The estimated income statement for the current year is as follows:
Sales ........ $2,000,000
Variable costs ... 1,100,000
Contribution margin . 900,000
Fixed costs ...... 765,000
Pretax profit ..... $135,000
A. Compute the contribution margin per swimsuit and the number of swimsuits that must be sold to break even.
B. What is the margin of safety in the number of swimsuits?
C. Suppose the margin of safety was 5,000 swimsuits last year. Are operations more or less risky this year compared to last year? Explain.
D. Compute the contribution margin ratio and the breakeven point in revenues.
E. What is the margin of safety in revenues?
F. Suppose next year’s revenue estimate is $200,000 higher. What would be the estimated pretax profit?
G. Assume a tax rate of 30%. How many swimsuits must be sold to earn an after-tax profit of $180,000?