Menlo Company distributes a single product. The company’s sales and expenses for
ID: 2540594 • Letter: M
Question
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
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 $37,200?
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 $65,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
Total Per Unit Sales $ 316,000 $ 20 Variable expenses 221,200 14 Contribution margin 94,800 $ 6 Fixed expenses 75,600 Net operating income $ 19,200Explanation / Answer
As per chegg guidelines when ther are more than 4 parts to the question then we have to answer first 4 parts 1)Calculation of break even point in unit sales and dollar sales Break even point= Fixed cost/ contribution per unit Break even point= 75600/6= 12600 units Break even point in unit sales is 12600 units Break even point in dollar sales= unit* selling price= 12600*20 Break even point in dollar sales= $252000 2)At break even point, there is no profit no loss and the contribution margin is equal to fixed cost. As fixed cost is $75600 so contribution margin will also be $75600 So contribution margin is $75600 3-a) Calculation of number of units: Number of units= (Fixed cost+ profit)/ contribution per unit =(75600+37200)/6=18800 units Number of units= 18800 units 3-b) Contribution Format Income Statement Particulars Total Per unit Sales(18800*20) 3,76,000 20 Variable cost(18800*14) 2,63,200 14 Contribution margin(Sales - Variable Cost) 1,12,800 6 Fixed expenses 75,600 Net operating income 37,200 4)Calculation of margin of safety in dollar: Margin of safety in dollars= Total sales- break even point in dollars = 316000-252000= $64000 Margin of safety in dollars= $64000 Margin of safety in percentage= 64000/316000*100= 20.25% Margin of safety in percentage= 20.25%