Menlo Company distributes a single product. The company\'s sales and expenses fo

Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow TotalPer Unit Sales Variable expenses 632,000 $40 442,400 28 Contribution margin Fixed expenses 189,600 $ 12 45,200 Net operating income $44,400 Required: 1. What is the monthly break-even point in unit sales and in dollar sales? Break-even point in unit sales Break-even point in sales dollars units 2. Without resorting to computations, what is the total contribution margin at the break-even point? Total contribution margin 3-a How many units would have to be sold each month to earn a target profit of $70,800? Use the formula method. nits sold

Explanation / Answer

Question - 1

Break – even point in Units sales

= Fixed cost / Contribution margin per Unit = 145200 / 12 = 12100 Units

Break – even point in Sales dollars = 12100 Units * 40 = 484,000

Question - 2

At Break even point we will have contribution exactly equal to pay for fixed cost. So without any calculations we can say contribution at break-even = fixed cost = 145200

Question - 3 (a)

Number of units sold = (Fixed cost + target profit) / Contribution margin per unit

= (145200 + 70800) / 12 = 18000

Question – 3 (b)

Question - 4

Margin of safety ( Dollars ) = Actual sales – Break – Even sales = 632000 – 484000 = 148000

Margin of safety ( % ) = Margin of safety / Actual sales * 100 = 148000 / 632000 * 100 = 23.42

Question - 5

CM ratio = Contribution margin / Selling price * 100 = 12 / 40 * 100 = 30 %

Net Operating income increase by ........... 100,000 * 30 % = 30,000

Kindly rate the answer ............. all the best.

                            Contribution Income statement Total Unit Sales 720000 40 (-) Variable cost 504000 28 Contribution margin 216000 12 (-) Fixed cost 145200 Profit 70800

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