Menlo Company distributes a single product. The company\'s sales and expenses fo
ID: 2391434 • Letter: M
Question
Menlo Company distributes a single product. The company's sales and expenses for last month follow: Total Per Unit Sales Variable expenses Contribution margin Fixed expenses Net operating income $636,000 445, 200 190,800 148,800 $ 42,000 $ 40 28 12 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? 3-a. How many units would have to be sold each month to attain a target profit of $74,400? 3-b. Verify your answer by preparing a contribution format income statement at the target sales level. 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 $57000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?Explanation / Answer
Total PU Sales 636000 40.00 Variable Cost 445200 28.00 Contribution Margin 190800 12.00 Fixed Cost 148800 Net Opeating Income 42000 Contribution Margin Ratio 30.00% 30.00% (CM/Sales) 1 Break Even Point: A Sale Value 496000 (Fixed Cost/CM Ratio) B Units 12400 (Fixed Cost/CM ) 2 At Break even point, Contribution margin is equal to fixed cost i.e. 148800/- 3A Target Profit 74400 Fixed Cost 148800 Total Required CM 223200 Contribution Margin 12.00 Required Units 18600 3B Total Sales 744000 (18600*40) Variable Cost 520800 (18600*28) Contribution Margin 223200 Fixed Cost 148800 Net Opeating Income 74400 4 Margin of Safety: In Dollars 140000 (Current Sales-Break Even Sales) In Units 3500 (Current Sales-Break Even Sales)/SP 5 Contribution Margin Ratio 30.00% (CM/Sales) Increase in Sales 57000 Contribution Margin Ratio 30.00% Increase in NOI 17100 (57000*30%)