Arberg Company's controller prepared the following budgeted income statement for the coming year: Sales ........................$415,000 Total variable cost .........302,950 Contribution margin......$112,050 Total fixed cost ..............64,800 Operating income .........$47,250 Required: 1. What is Arberg's variable cost ratio? What is its Contribution margin ratio? 2. Suppose Arberg'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. 3. How much sales revenue must Arberg earn to break even? Prepare a Contribution margin income statement to verify the accuracy of your answer. 4. What is Arberg's expected margin of safety? 5. What is Arberg's margin of safety if sales revenue is $380,000?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Arberg Company's controller prepared the following
Sales ........................$415,000
Total variable cost .........302,950
Contribution margin......$112,050
Total fixed cost ..............64,800
Operating income .........$47,250
Required:
1. What is Arberg's variable cost ratio? What is its Contribution margin
ratio?
2. Suppose Arberg'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.
3. How much sales revenue must Arberg earn to break even? Prepare a Contribution margin
income statement to verify the accuracy of your answer.
4. What is Arberg's expected margin of safety?
5. What is Arberg's margin of safety if sales revenue is $380,000?
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