Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 22

Break-Even in Sales Revenue, Variable-Costing Ratio, Contribution Margin Ratio, Margin of Safety
Hammond Company runs a driving range and golf shop. The budgeted income statement for the coming year is as follows.

Required:
1. What is Hammond's variable cost ratio? Its contribution margin ratio?
2. Suppose Hammond's actual revenues are $200,000 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 Hammond earn 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 Hammond generate to earn a before-tax profit of $130,000? An after-tax profit of $90,000? (Round your answers to the nearest dollar.) Prepare a contribution margin income statement to verify the accuracy of your last answer.