Question
Menlo Company distributes a single product. The company's sales and expenses for last month follow Total Unit Sales $628,000 $40 Variable expenses 439-60028 contribution margin 188,400 $12 Fixed expenses151-200 Net operating income ed ok 37,200 nt Required: 1. What is the monthly break-even point in unit sales and in dollar sales? 2. Without resorting to computations, what is the total contribution margin at the break-even point? ence3-a. How many units would have to be sold each month to attain a target profit of $58,800? 4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms 5. What is the company's CM ratio? If sales increase by $90,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 4 Req5 What is the monthly break-even point in unit sales and in dollar sales? Break-even point in unit units Break-even point in dolar sales Reg
Explanation / Answer
Req 1 Break even(units) = total fixed cost/contribution margin per unit 151200/12 12600 units Break even(sales) = 12600*40 504000 Break even point in unit sales 12,600 units Break even point in dollar sales 504000 Req 2 total contribution margin 151,200 Req 3 3a) units to be sold =(total fixed cost+target profit)/contribution margin per unit (151,200+58,800)/12 17500 units unit sales needed to attain target profit 17,500 units 4)
Margin of safety = actual sales - BEP sales 628,000-504,000 124000 Margin of safety(%) = margin of safety/actual sales 124000/628000 19.75% Dollars percentage Margin of safety 124000 19.75% 5) CM ratio = 12/40 30.00% net operating income will increase by 90000*30% 27000 CM ratio 30% net operating income increases by 27,000