Question

Menlo Company distributes a single product. The companys sales and expenses for last month follow: Sales Variable expenses CReg 1 Regi Rega Reg 2 Req3a Reg 3A Reg 3B Reg 3B Reg 4 Rega Reg 5 Reas How many units would have to be sold each month to attReg 1 Reg 2 Req 3A Req 3B Reg 4 Reg 5 Verify your answer by preparing a contribution format income statement at the target Me

Reg 1 Reg 2 Req ЗА Req 3B Reg 4 Reg 5 Refer to the original data. Compute the companys margin of safety in both dollar and pReg 1 Reg 2 Req 3A Req 3B Reg 4 Reg 5 What is the companys CM ratio? If sales increase by $88,000 per month and there is muc

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Answer #1
Req. 1
Break-even point in unit sales = Fixed expenses / Contribution margin per unit = 77400 / 6 12900 units
Break-even point in dollar sales = Break-even point in unit sales * Selling price per unit = 12900 * 20 258000
Req. 2
Total contribution margin at break-even point 77400
Explanation : Break-even point is the sales level where there is no profit or loss, thus the contribution margin at break-even point equals to the fixed expenses.
Req 3A
Units sales needed to attain target profit = ( Target profit + Fixed expenses ) / Contribution margin per unit = ( 31800 + 77400 ) / 6 18200
Req 3B
Menlo Company
Contribution Income Statement
Total Per unit
Sales ( 18200 * 20 ) 364000 20
Variable expenses ( 18200 * 14 ) 254800 14
Contribution margin 109200 6
Fixed expenses 77400
Net operating income 31800
Req 4
Margin of safety in dollars = Sales - Break even point in dollar sales = 306000 - 258000 48000
Margin of safety percentage = ( Sales - Break even point in dollar sales ) / Sales = ( 306000 - 258000 ) / 306000 15.69%
Dollars Percentage
Margin of safety 48000 15.69%
Req 5
CM ratio = Contribution margin per unit / Sales per unit = 6 / 20 30%
Net operating income increase by = ( Increase in sales * CM ratio ) - Increase in fixed cost = ( 88000 * 30% ) - 0 26400
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