Menlo Company distributes a single product. The company\'s sales and expenses fo
ID: 2552778 • Letter: M
Question
Menlo Company distributes a single product. The company's sales and expenses for last month follow Per Unit 308,00 $20 Total Sales Variable expenses Contribution margin Fixed expenses Net operating income 215,60014 92,400 6 75,600 16,880 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 $33,000? 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 $82,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg 3A Req 38 Req 4 Req 5 What is the monthly break-even point in unit sales and in dollar sales? Break-even point in unit sales Break-even point in dollar sales units Req 2 )Explanation / Answer
1. let BEP in Sales Units be x
Break-even Sales Units = x =FC/ (p v)
Where,
p is the price per unit,
x is the number of units,
v is variable cost per unit and
FC is total fixed cost.
Therefore, x = 75600/ (20-14) = 12600 units
Break-even Sales Dollars = Price per Unit × Break-even Sales Units
= 12600 units * 20 = $ 252000
2. total contribution margin at break even point = 12600 * (20-16) = $75600
3 a. Target profit = $33000
FC = $75600
therefore, contribution margin = profit + FC = $33000 + $75600 = $108600
contribution margin per unit is 6
Hence, Total units to be sold =total contribution margin / contribution margin per unit
=$108600/6 = 18100 units
3 b.
4. Margin of safety in dollar = Total sales - break even point = $$308000 - $252000 = $56000
Margin of safety in % = Margin of safety/ Total sales = $56000/ $ 308000 = 18.18%
5. If sales increased by $82000, then new sales = $82000+$30800 = $390000
sales unit = Total sales/ price per unit = $390000/20 = 19500units
Contribution margin = sales unit * Contribution margin per unit = 19500units *6 = $117000
Therefore, CM Ratio = Contribution margin / Total sales = $117000/ $390000 = 30%
Revised Net operating income= Contribution margin - Fixed expenses = $117000- $75600 = $41400
Hence, Net operating income increased by - $41400- $16800= $24600
we know that px = vx + FC + Profit