Gossimer, Inc., is a manufacturer of exercise equipment. The budgeted income statement for the coming year is as follows.
Sales ............$900,000
Less: Variable expenses .....342,000
Contribution margin ......$558,000
Less: Fixed expenses ......363,537
Income before taxes .....$194,463
Less: Income taxes ........77,785
Net income ..........$116,678
Required:
1. What is Gossimer’s variable cost ratio? Its Contribution margin ratio?
2. Suppose Gossimer’s actual revenues are $150,000 greater than budgeted. By how much will before-tax profits increase? Give the answer without preparing a new income statement.
3. How much sales revenue must Gossimer generate in order to break even? What is the expected margin of safety? (Round your answers to the nearest dollar.)
4. How much sales revenue must Gossimer generate to earn a before-tax profit of $200,000? An after-tax profit of $120,000? Prepare a Contribution margin income statement to verify the accuracy of your last answer.