Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Per Unit $20 Total '$ 308,000 215,600 92,400 76,800 $ 15,600 $ Sales Variable expenses Contribution margin Fixed expenses Net operating income 6 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 $25.200? 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 Reg 2 Reg 3A Req 3B Reg 4 Reg 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

Answer 1

Solution:

1)	Break Even Point in Units
	Total Fixed Cost / Expenses	$76,800
	Contribution Margin Per Unit	$6
	Break Even Point in Units (Fixed Cost / Unit CM)	12800	Units
	Break Even Point in dollar sales
	Total Fixed Cost	$76,800
	Contribution Margin Ratio (Refer Note 1)	30%
	Break Even Point in dollar sales (Fixed Cost / CM Ratio)	$256,000
	Note 1 --
	Unit Selling Price (A)	$20.00
	Less: Unit Variable Costs	$14.00
	Unit Contribution Margin (B)	$6.00
	CM Ratio (B / A*100)	30.00%

2)

Total Contribution Margin at break even point is the total fixed costs expenses i.e. $76,800

Break Even Point is the level of sales where total fixed expenses equal to the total contribution margin.

3(a) –

Number of Units to be sold to achieve target profit
Total Fixed Cost	$76,800
Plus: Target Profit (Given)	$25,200
	$102,000
Divide by: Contribution Margin Per Unit	$6
Number of Units to be sold to achieve target profit	17000	Units

3(b) –

Monle Company
Contribution Income Statement
	Total	Per Unit
Sales (17,000 Units * $20)	$340,000	$20
Variable Expenses (17,000 Units x 14)	$238,000	$14
Contribution Margin	$102,000	$6
Fixed Expenses	$76,800
Net Operating Income	$25,200

4)

Margin of Safety in sales revenue
Total Sales Revenue	$308,000
Break Even Point in Sales Revenue	$256,000
Margin of Safety (Sales Revenue - Break Even Sales)	$52,000
Margin of Safety as percentage of sale
Margin of Safety	$52,000
Total Sales	$308,000
Margin of Safety in Percentage (Margin of Safety / Total Sales x 100)	16.88%

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Pls ask separate question for other parts problems