Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Per Unit $ 20 14 Sales Variable expenses Contribution margin Fixed expenses Net operating income Total $ 306,000 214,200 91,800 72,000 $ 19,800 points (8 02:54:09 Required: 1. What is the monthly break-even point in unit sales and in dollar sales? units Break-even point in unit sales Break-even point in sales dollars 2. Without resorting to computations, what is the total contribution margin at the break-even point? Total contribution margin 3-a. How many units would have to be sold each month to earn a target profit of $37,800? Use the formula method. Units sold
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Answer 1

72000 30% Selling Price Per unit Varaibel Expense Per unit Fixed Expenses Compute the CM ratio Selling Price Per unit Varaibel Expense Per unit Contribution Margin per unit ( Selling Price - Varible Cost) CM Ratio =( CM/Selling Price) 1. Compute the Break Even pont 1 Break Even in Unit Sales =( Fixed Cost / CM Per unit) 2.Brake Even in Dollar sales =( Fixed Cost/ CM ratio) 2. Determine the Contribution Margin at the Break even point Contribution Margin at the Break even point = Fixed Cost 3. a) Units to get the target profit of $37,800 (Fixed cost + target profit)/ CM per unit 12000 Units 240000 Dollars 72000 18300

3.B) Verify the answer with Contribution margin Income Statement Contribution Margin Statement Total Per unit sale 366000 20 Varaible Expenses 256200 14 Contibution margin 109800 6 Fixed Expenses 72000 Net Operating Income 37800 4. Compute the Margin of Safety Margin of Safety in dollars =(units *selling price -BEP Dollars) 66000 Dollars Margin of Safety in Percentage =(Margin of safety Dollars Actual sales ) 21.57% Percent CM Ratio =( CM/Selling Price) Net Operating Income Increased by (0.30*99000) 30% 29700