Menlo Company distributes a single product. The company\'s sales and expenses fo
ID: 2544565 • Letter: M
Question
Menlo Company distributes a single product. The company's sales and expenses for last month follow: Total $612,000 428,400 Per Ui S 40 28 Variable expenses Contribution margin Fixed expenses 183,600 146,400 12 Net operating income $ 37,200 Required: 1. What is the monthly break-even point in unit sales and in dollar sales? units Break-even point in unit sales Break-even point in sales dollars 2. Without resorting to computations, what is the total contribution margin at the break-even point? Total contribution margin 3-a. How many units would have to be sold each month to earn a target profit of $57,6002 Use the formula method Units soldExplanation / Answer
Answer 1.
Contribution Margin per unit = $12
Selling Price = $40
Fixed Expenses = $146,400
Contribution Margin Ratio = Contribution Margin per unit / Selling Price
Contribution Margin Ratio = $12 / $40
Contribution Margin Ratio = 30%
Breakeven Point in sales dollars = Fixed Expenses / Contribution Margin Ratio
Breakeven Point in sales dollars = $146,400 / 0.30
Breakeven Point in sales dollars = $488,000
Breakeven Point in unit sales = Fixed Expenses / Contribution Margin per unit
Breakeven Point in unit sales = $146,400 / $12
Breakeven Point in unit sales = 12,200 units
Answer 2.
At breakeven point:
Total Contribution Margin = Fixed Expenses
Total Contribution Margin = $146,400
Answer 3-a.
Contribution Margin per unit = $12
Fixed Expenses = $146,400
Desired Profit = $57,600
Number of units sold = (Fixed Expenses + Desired Profit) / Contribution Margin per unit
Number of units sold = ($146,400 + $57,600) / $12
Number of units sold = 17,000
Answer 3-b.
Answer 4.
Margin of Safety in dollars = Actual Sales - Breakeven Point in dollars sales
Margin of Safety in dollars = $612,000 - $488,000
Margin of Safety in dollars = $124,000
Margin of Safety in units = Actual unit sales - Breakeven Point in unit sales
Margin of Safety in units = 15,300 - 12,200
Margin of Safety in units = 3,100
Answer 5.
Contribution Margin per unit = $12
Selling Price = $40
CM Ratio = Contribution Margin per unit / Selling Price
CM Ratio = $12 / $40
CM Ratio = 30%
Increase in Net Operating Income = Increase in Sales * CM Ratio
Increase in Net Operating Income = $93,000 * 30%
Increase in Net Operating Income = $27,900