Menlo Company distributes a single product. The company\'s sales and expenses fo
ID: 2550205 • Letter: M
Question
Menlo Company distributes a single product. The company's sales and expenses for last month follow 20 $318,000 Sales Variable expenses 222,600 Contribution margin95,400 $6 14 Flxed expenses 72,600 Net operating income $ 22,800 Required: 1. What is the monthly break-even point in unit sales and in dollar sales? Break-even point in unit sales Break-even point in sales dollars units 2. Without resorting to computations, what is the total contribution margin at the break-even point? 3- How many units would have to be sold each month to eam a target profit a. of $37,200? Use the formula method. 3- Verify your answer by preparing a contribution format income statement at b. the target sales level. Contribution Income Statement Total PerExplanation / Answer
Answer:
1
Break even pint in units
12100
Break even pint in dollar
242000
Explanation to the answer
Profit
=
Unit CM × Q Fixed expenses
$0
=
($20 $14) × Q $72600
$0
=
($6) × Q $72600
$12Q
=
$72600
Q
=
$72600 ÷ $6per unit
Q
=
12100 units, or at $20 per unit, $242,000
_________________________________________________________
2
Total Contribution margin
72600
Explanation to the answer
The contribution margin is $72600 because the contribution margin is equal to the fixed expenses at the break-even point
________________________________________
3
3-a.
Unit sold
18300
Explanation to the answer
The unit sales to attain the target profit is computed as follows:
Unit sold to attain target profit
= Target profit + Fixed expenses / Unit contribution margin
=37200+72600 /6
=18300 units
____________________________________________
3-b
Sales
366000
20
less:
variable cost
256200
14
Contribution margin
109800
6
Less: Fixed cost
72600
Operating profit
37200
________________________________________
4
Margin of safety
=Total sales- Break even sales
=318000-242000
=76000
Margin of safety percentage
= Margin of safety / total sale
=76000/318000
=23.90%
Dollar
%
Margin of safety
76000
23.90%
_________________________________--
5
Current CM ratio
=(20-14)/20
=6/20
=30%
Cm ratio
30%
Expected total contribution margin
: ($100,000 × 30%)
30000
Break even pint in units
12100
Break even pint in dollar
242000