Question

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 4. 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). Dollars Percentage Margin of safety 5. 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

Answer 1

153600 40 28/ 30% 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 $52800 (Fixed cost + target profit)/CM per unit 3.B) Verify the answer with Contribution margin Income Statement Contribution Margin Statement 12800 Units 512000 Dollars 153600 17200 sale Varaible Expenses Contibution margin Fixed Expenses Net Operating Income 4. Compute the Margin of Safety Margin of Safety in dollars =(units selling price -BEP Dollars) Margin of Safety in Percentage =(Margin of safety Dollars/ Actual sales) Total Per unit 688000 481600 206400 153600 52800 128000 Dollars 20.00% Percent CM Ratio =( CM/Selling Price) Net Operating Income Increased by (0.30*98000) 30% 29400