Answer:
1. Sales revenue = $102.500
2. Net Income = $31,500
Explanation:
Requirement 1
We know,
Break-even sales = Fixed Expense ÷ Contribution Margin Ratio
Given,
Fixed Expense = $30,000
Contribution Margin Ratio = ?
Break-even sales (Sales revenue needed to break even) = $50,000
Putting the value into the above formula,
$50,000 = $30,000 ÷ Contribution Margin Ratio
or, $50,000 × Contribution Margin Ratio = $30,000
Therefore, Contribution Margin Ratio = $30,000 ÷ $50,000 = 0.60
Contribution Margin Ratio = 60% (As C.M. Ratio has to be a percentage)
Again,
Sales - Variable expense = Contribution Margin
If contribution Margin is 60%, then variable expense will be = (100% - 60%) = 40%.
Therefore, variable expense = $41,000. (That is 40% of sales)
Therefore, Variable expense ÷ Sales revenue = Variable expense ratio
or, Sales revenue = Variable expense ÷ Variable expense ratio
Sales revenue = $41,000 ÷ 40%
Hence, Sales revenue = $102.500
Requirement 2
Berg Dry Cleaners
Contribution Margin Income Statement
Sales Revenue (Requirement 1) $102.500
Less: Variable expense (41,000)
Contribution Margin (60%) 61,500
Less: Fixed expense (30,000)
Net operating Income $31,500
If the company sales in break even point, the contribution margin ratio = ($50,000 - 41,000) ÷ $50,000 = 0.18 = 18%. At that point, the net operating income is = 0.