Menlo Company distributes a single product. The company\'s sales and expenses fo
ID: 2391852 • Letter: M
Question
Menlo Company distributes a single product. The company's sales and expenses for last month follow: Per Unit $ 20 14 Total Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 300,000 210,000 90,000 72,600 $ 17,400 Requirecd 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 $31,800? 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 $75,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?Explanation / Answer
1) Break even point in unit = 72600/6 = 12100 Units
Break even point sales = 12100*20 = $242000
2) Break even contribution margin = Fixed cost = $72600
3) Required unit sales = (72600+31800)/6 = 17400 Units
4) Margin of safety = 300000-242000 = $58000
Margin of safety percentage = 58000*100/300000 = 19.33%
5) Contribution margin ratio = 6/20 = 30%
Net operating income increase by = 75000*30% = $22500