Question

Help Save & Exit Su Check my wo Menlo Company distributes a single product the company's sales and expenses for last month follow Variable expenses Contribution margin Fixed expenses Net operating income Total $385, 889 214,200 91,880 T4,400 $ 12.480 Per Unit $20 14 56 Required: 1 What is the monthly break even point in unit sales and in collar 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 $27500? 3-5 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? Ir sales increase by $65.000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase < Brex 5 of 5 18 Next >

Answer 1

1.

Break- even point in unit sales	$12,400 Units
Break- even point in dollar sales	$248,000

Explanation;

Profit = Unit CM × Q - Fixed Expenses

$ 0 = ($20 - $14) × Q - $ 74,400

$0 = ($6) × Q - $ 74,400

$6Q = $74,400

Q= $74,400 ÷ $6 Per Unit

Q= $12,400 Unit , or at 20 Per Unit $248,000

2. Total Contribution Margin = $74,400

Explanation;

The Contribution Margin is $74,400 because the contribution margin is equal to the fixed expenses at the break even point.

3. a) Unit Sales needed to attain Target Profit = $17,000 Unit

Explanation;

Target Profit + Fixed Expenses/ Unit Contribution Margin

= $27,600 + $74,400 / $ 6 = 17,000 Units

b.)

Menlo Company

Contribution Income Statement

Particulars	Total	Per Unit
Sales	$340,000	$20
Variable Expenses	$238,000	$14
Contribution Margin	$102,000	$6
Fixed Expenses	$74,400
Net Operating Income	$27,600

Explanation;

Sales = 17,000 Units × $20 Per Unit = $340,000

Variable Expenses = 17,000 Units × $14 Per Unit = $238,000

4.

	Dollars	Percentage
Margin of Safety	$58,000	18.95 %

Explanation ;

Margin of safety in dollar items;

Margin of safety in dollars = Total Sales - Break Even Sales

= $306,000 - $248,000 = $58,000

Margin of Safety in Percentage Terms ;

Margin of safety Percentage = Margin of Safety in dollars / Total Sales

= $58,000 / $306,000 = 18.95 %

-5. CM Ratio 30%

Net Operating Increased by $19,500

Explanation;

The CM Ratio is 30% = [(20-14) ÷ 20]

Expected Total Contribution margin : ($371,000 × 30 % ) = $111,300

Present Total Contribution Margin ($306,000 × 30% ) = $91,800

Increased Contribution Margin = $19,500 ($111,300 - $91,800)