Menlo Company distributes a single product. The company\'s sales and expenses fo
ID: 2556168 • Letter: M
Question
Menlo Company distributes a single product. The company's sales and expenses for last month follow er ni Total Sales Variable expenses Contribution margin Fixed expenses 316,00 $20 221,288 4 94,800 % 6 76,800 Net operating income 18,000 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 $33,600? 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 $64,000 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) Profit = unit CM * Q - Fixed cost
or, 0 = 6*Q - 76,800
or, Q = 76800/6 = 12,800 units and in dollars sales, (12800*20), $256,000
(2) Contribution margin at the break-even point;
= 12800*6 = $76,800
(3)(a) Total units sold to attain target profit;
= (Target profit+Fixed cost)/unit contribution margin
= (33600+76800)/6 = 18,400 units.
(3)(b) Contribution format Income statement:
(4) Margin of safety in dollars = Total sales - Break-even sales = 316000-256000 = $60,000
Margin of safety % = Margin of safety in dollars/Total sales = 60000/316000 = 18.9%
(5) CM ratio = 6/20 = 30%
Expected Contribution margin: $380,000*30%
= $114,000
Present Contribution margin: $316000*30% = $94,800
Increase in Contribution margin = Expected Contribution margin - present Contribution margin
= 114000-94800 = $19,200
Therefore, The monthly net operating income will increase by = $19,200
Particulars Total ($) per unit ($) Sales(18400*20) 368,000 20 Variable expense (18400*14) 257,600 14 Contribution margin(18400*6) 110,400 6 Fixed expenses 76,800 Net operating income 33,600