Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Total $ 318,000 222,600 Per Unit $20 14 $ 6 Sales Variable expenses Contribution margin Fixed expenses Net operating income 95, 400 75,000 $ 20,400 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 $38,400? 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 Req 3A Req 3B Req 4 Reg 5 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 dollar sales

Answer 1

					Formula	Calculation
	Req-1	Break-even point in unit sales	12500	Units	Fixed cost/Contribution per unit	75,000/6
		Break-even point in Dollar Sales	$250,000		Fixed Cost/Contribution ratio	250,000/30%
						Contribution ratio = 6/20 = 30%
	Req-2	Total contribution margin at break-even	$75,000		At break-even total contribution margin = fixed Cost
	Req-3A	Units sales needed to attain target profit	18,900		(Target profit+fixed cost)/contribution per unit	(38,400+75,000)/6
	Req-3B	Menio Company
		Contribution Income Statement
			Total	Per Unit
		Sales	$378,000	20	(18,900*20)
		Variable expense	$264,600	14	(18,900*14)
		Contribution margin	$113,400	6
		Fixed expense	$75,000
			$38,400
			Dollars	Percentage
	Req-4	Margin of Safety	$68,000	21.38%
			(318,000-250,000)		Margin of safety =   (Current sales level – breakeven point) / Current sales level X 100
	Req-5	CM Ratio	30%		(Sales-Variable expense)/sales
		Net operating income increased by	$24,600		(82,000*30%)

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