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.
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
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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