Question

Berg Dry Cleaners has determined the following about its​ costs: Total variable expenses are $ 41 comma 000​, total fixed expenses are $ 30 comma 000 comma and the sales revenue needed to break even is $ 50 comma 000. Determine the​ company's current​ 1) sales revenue and​ 2) operating income. ​(​Hint:​ First, find the contribution margin​ ratio; then prepare the contribution margin income​ statement.) Use the contribution margin income statement and the shortcut contribution margin approaches to determine Berg's current​ (1) sales revenue and​ (2) operating income. Begin by computing the contribution margin ratio. ​(Enter the result as a whole​ number.) The contribution margin ratio is 18 %.

Answer 1

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.

Answer 2

The Berg Dry Cleaners has Sales revenue of $1,02,500 and the Net Income is $93,000.

What is Net Income?

The term Net Income is mainly used ion the field of accounting and finance.

It is calculated by subtracting an entity's income to the cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period of time.

Computation of sales revenue:

According to the given information,

Fixed Expense = $30,000

Break-even sales (Sales revenue needed to break even) = $50,000

Contribution Margin Ratio = ?

First, we have to find the value of contribution margin ratio,

$\text{Break-Even Sales}=\dfrac{\text{Fixed Expense}}{\text{Contribution Margin Ratio}}$

Putting the given values in the above formula,

$\text{Break-Even Sales}=\dfrac{\text{Fixed Expense}}{\text{Contribution Margin Ratio}}\\\\\\\text{\ 50,000}=\dfrac{\text{\ 30,000}}{\text{Contribution Margin Ratio}}\\\\\\\text{Contribution Margin Ratio} = \dfrac{\ 30,000}{\ 50,000}\\\\\\\text{Contribution Margin Ratio} = 0.60$

Hence, The Contribution Margin Ratio = 60%  ($0.60\times100$)

Now,

$\text{Contribution Margin} =\text{Sales - Variable Expense}$

If contribution Margin is 60%, then variable expense is:

$(100\% - 60\%) = 40\%.$

Therefore, variable expense = $41,000. (That is 40% of sales)

As we have known:

$\text{Sales Revenue} =\dfrac{ \text{Variable Expense} }{\text{Variable Expense Ratio}}$

Now, apply the given values in the above formula,  we have

$\text{Sales Revenue} = \dfrac{\ 41,000}{40\%}\\\\\text{Sales Revenue}=\ 1,02,500$

Computation of Operating income:

The operating income of the above case is given in the image below.

As per the above case,  the company sales in break even point, the contribution margin ratio:

$=\dfrac{\ 50,000-\ 41,000}{\ 50,000}\\\\= 0.18$

Therefore, the contribution margin ratio is 18%.

At that portion, the net operating income is 0.

Therefore, the sales revenue is  $1,02,500.

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