Question

Calculator Sales Revenue Approach, Variable Cost Ratio, Contribution Margin Ratio Paragon Company's controller prepared the following budgeted income statement for the coming year: Sales $490,000 Total variable cost 302,950 Contribution margin $187,050 64,800 Total fixed cost Operating income 122,250 Required: If required, round ratios to the nearest whole percent. Use rounded amounts in subsequent requirements. Round dollar amounts to the nearest dollar. 1. What is Paragon's variable cost ratio? What is its contribution margin ratio? Variable cost ratio Contribution margin ratio 2. Suppose Paragon's actual revenues are $30,000 more than budgeted. By how much will operating income increase? Give the answer without preparing a new income statement. 3a. How much sales revenue must Paragon earn to break even? 3b. Prepare a contribution margin income statement to verify the accuracy of your answer. If an amount is zero, enter "0". Paragon Company Contribution Margin Income Statement For the Coming Year 4. What is Paragon's expected margin of safety? 5. What is Paragon's margin of safety if sales revenue is $380,000?

Answer 1

Sales Total variable $4,90,000 $ 302950 Contribution = Total Fered cost = oporating Income = $1,87,050 $64800 $122250 Variable cost reato = variable cost Total Ruenue 302950 X 100 4,90,000 = Ooti % 61.82% contribution Margin Ratw = Total Revenue- variable cost Total Ruunu = 4,90,000 - 302950 x100 4,90,000 0.38 % 238.17 % =

2 Actual Ruunu- 30,000 & + Budgeted = 30,000 +4,90.600 = $ 5,20,000 variable cost Cactual) = Budgeted variable cost x Budgeted sales Actual Sales Alternatively Actual variable cost z variable & cost Ratio Actual salis = = 5,20,000 X 0:6182 3,21,464 Freund cost= 64600 operating cost (Ruused ) - Total Sales - Variable cost- Fured cost = 5,20,000 - 3,21,464-64800 = 1,33,7368

3. Виаlkаn fоunt Let assume Price of product be $1000 Breakeunt Total Fured cost contribution paruenit contribution par unite 181050 1000 - 187.05 Breakeun cun sales) = 64800 X 1000 787005 = 346431 $ Breakuun Sales e 3,46,43) $