Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
Total | Per Unit | ||||
Sales | $ | 318,000 | $ | 20 | |
Variable expenses | 222,600 | 14 | |||
Contribution margin | 95,400 | $ | 6 | ||
Fixed expenses | 76,200 | ||||
Net operating income | $ | 19,200 | |||
. What is the monthly break-even point in unit sales and in dollar sales?
Break even point in unit sales | ? | units |
Break even point is 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 $34,800? Use the formula method.
Units sold=
3-b. Verify your answer by preparing a contribution format income statement at the target sales level.
Menlo Company
Contribution Income Statement
total | per unit | |
? | ? | ? |
? | ? | ? |
? | 0 | 0 |
? | ? | |
0 |
4. Refer to part 3 and now assume that the tax rate is 30%. How many units would need to be sold each month to an after-tax target profit of $34,800? (Round the final answer to the nearest whole number.)
unit sales require = (in units)
5. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. (Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).)
|
6. What is the company’s CM ratio? If monthly sales increase by $98,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
CM Ratio | ? | % |
Net operating income increases by | ? |
1) Break even unit = Fixed cost/Contribution margin per unit = 76200/6 = 12700 Units
Break even sales = 12700*20 = $254000
2) Total Contribution margin = $76200
3) Unit sold = (76200+34800)/6 = 18500 Units
3b) Contribution margin income statement
Total | Per unit | |
Sales | 370000 | 20 |
Variable cost | 259000 | 14 |
Contribution margin | 111000 | 6 |
Fixed cost | 76200 | |
Operating income | 34800 |
4) Income before tax = 34800*100/70 = 49714
Units sold = (76200+49714)/6 = 20986 Units
5) Margin of safety
$ | % | |
Margin of safety | 318000-254000 = 64000 | 64000/318000 = 20.13% |
6) CM ratio = 6/20 = 30%
Net operating income increase by 98000*30% = 29400
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
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