Sports-Reps, Inc., represents professional athletes and movie and television stars. The agency had revenue of $12,345,000 last year, with total variable costs of $5,678,700 and fixed costs of $2,192,400.
1. What is the contribution margin ratio for Sports-Reps based on last year’s data? What is the break-even point in sales revenue?
2. What was the margin of safety for Sports-Reps last year?
3. One of Sports-Reps’s agents proposed that the firm begin cultivating high school sports stars around the nation. This proposal is expected to increase revenue by $230,000 per year, with increased fixed costs of $122,500. Is this proposal a good idea? Explain.