Menlo Company distributes a single product. The company\'s sales and expenses fo
ID: 2413832 • Letter: M
Question
Menlo Company distributes a single product. The company's sales and expenses for last month follow Per Unit $ 20 Total Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 310,000 217,000 93,000 75,000 $ 18,0e0 14 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 $35,400? 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
(1) Break Even Pint :-
BEP (in units)
12500 units
BEP (in $ sales)
$250000
BEP (in units) = Fixed cost/Contribution per unit
= 75000/6 = 12500 units
BEP ($) = 12500 units * $ 20
(2) Contribution at Breakeven point =
At BEP Contribution = Fixed Cost
= 75000
(3a) Target Profit = 35400
Let “X” be the units sold
Sale – VC – FC = 35400
(20 * X) – (14 * X) – 75000 = 35400
6 X = 110400
X = 18400 units
(3b)
Total
Per unit
Sales (18400 * 20)
368000
20
Variable Exp (18400 * 14)
257600
14
Contribution Margin
110400
6
Fixed Exp
75000
Net Operation Income
35400
(4)
Dollars
Percentage
MOS
60000
19.35%
Margin of Safety ($)= Actual Sale – BEP
= 310000 – 250000 = $ 60000
MOS (%) = 60000/310000 = 19.35%
(5)
CM Ratio
30%
Net Operating Income increase by
$ 17100
CM Ratio = (Total Revenue – Variable cost)/Total Revenue
= (310000 – 217000)/310000 = 30%
If sale increase by $ 57000 & no change in Fixed cost then:-
Net Operating Income increase by = 57000 * 30% = $ 17100
BEP (in units)
12500 units
BEP (in $ sales)
$250000