Menlo Company distributes a single product. The company\'s sales and expenses fo
ID: 2335052 • Letter: M
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 soldExplanation / Answer
1)
Break even sales in units
= Fixed costs / Contribution margin per unit
= $145,200 / $12
= 12,100 units
Break even sales in dollars
= Break even point units x Selling price per unit
= 12,100 x $40
= $484,000
2)
At break even point, there is no profit and no loss
So, Contribution – Fixed costs = 0
So, Contribution = Fixed costs at break even point
So, Total contribution margin at break even point = Fixed costs
= $145,200
3-a)
Units required to be sold
= (Fixed costs + Target profit) / Contribution per unit
= ($145,200 + $70,800) / $12
= 18,000 units
3-b)
4)
Margin of safety dollars
= (Current Sales – Break Even sales)
= ($632,000 – $484,000)
= $148,000
Margin of safety percentage
= (Current Sales – Break Even sales) / Current sales x 100
= ($632,000 – $484,000) / $632,000 x 100
= 23.42%
5)
Contribution Margin Ratio
= Contribution / Sales x 100
= $12 / $40 x 100
= 30%
If there is no change in fixed costs, for every change in Sales, Net operating income increases by Sales x Contribution margin
= $100,000 x 30%
= $30,000
Calculations Contribution Income statement Total Unit Quantity = 18,000 A = Quantity x Price Sales 7,20,000 40 B = Quantity x Variable cost per unit Variable expenses 5,04,000 28 C = A - B Contribution margin 2,16,000 12 D Fixed expenses 1,45,200 E = C - D Net Operating Income 70,800