Menlo Company distributes a single product. The company\'s sales and expenses fo

Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Sales Variable expenses Contribution Margin Fixed expenses Net Operating Income $450,000 180,000 $270,000 216,000 $54,000 $30 12 $18 Required.: 1. 2. What is the monthly break-even point in unit sales and in dollar sales? Without resorting to computations, what is the contribution margin at the break-even 3. 4. 5. How many units would have to be sold each month to earn a target profit of $90,000? Use the formula / contribution method? Refer to the orginal data. Compute the company's margin of safety in both dollars and percentage terms. What is the company's CM ratio

Explanation / Answer

1) Break even point = Fixed cost/contribution margin per unit

= 216000/18

Break even point = 12000 units

Break even sales = 12000*30 = $360000

2) Contribution margin at break even = 12000*18 = 216000

3) Required unit = Fixed cost+target profit/contribution margin per unit

= (216000+90000)/18

Required unit = 17000 unit

4) Margin of safety dollars = Actual sales-break even sales= (450000-360000)=90000

Margin of safety percentage = (450000-360000)/450000 = 20%

5) CM ratio = 18*100/30 = 60%

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