Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Total Sales Variable expenses Contribution margin Fixed expenses Net operating income Per Unit $ 628, eee $40 439,600 188,4ees 148,800 $ 39,620 ences 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 $72,000? 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 $64,000 per month and there is no change in fixed expenses, by how muc would you expect monthly net operating income to increase? Complete this question by entering your answers in the tabs below. Req1 Req 2 Reg 3A Reg 3B Req 4 What is the monthly break-even point in unit sales and in dollar units Break-even point in unit sales Break-even point in dollar sales

Answer 1

Menlo Company Requirement 1 Breakeven point in units = Fixed Expense/ (Sales - Variable expense) = 148800 / 12 = 12400 units Breakeven point in dollars = Fixed Expense/(Sales - Variable expense)/ Sales = 148800/(12/40) = 148800 / 0.30 = 496000 Requirement 2 The contribution margin is 148800 because the contribution margin is equal to the fixed expenses at the break even point Requirement 3a. Units sold to attain target profit = Target Profit + Fixed expense. Unit contribution margin = ( 72000 + 148800) / 12 = 18400 Requirement 3b. Contribution Income Statement 40 28 Sales Variable Expense Contribution Margin Fixed Expense Net Operating Income 736000 515200 220800 148800 72000 18400 x 40 = 736000 18400 x 28 = 515200 Requirement 4 Margin of Safety in dollars = Total Sales - Breakeven sales = 628000 - 496000 = 132000 Margin of Safety percentage = ( 132000 / 628000) = 21.02% Requirement 5 Increase in Contribution = Increase in sales x contribution margin = 64000 x 0.3 = 19200