Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Sales Variable expenses Contribution margin Fixed expenses Net operating income Skipped Total $ 616,000 431,200 184,800 151,200 $ 33,600 Per Unit $ 40 28 $ 12 eBook Print -ferences 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 $55,200? 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 $66,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Answer 1

1
Fixed expenses	151200
Divide by Contribution margin per unit	12
Break even point in unit sales	12600
Break even point in dollar sales	504000	=12600*40
2
Total Contribution margin	151200
3a
Fixed expenses	151200
Add: Required Profit	55200
Required Contribution margin	206400
Divide by Contribution margin per unit	12
Unit sales needed to attain target profit	17200
3b
	Total	Per unit
Sales	688000	40
Variable expenses	481600	28
Contribution margin	206400	12
Fixed expenses	151200
Net Operating income	55200
4
Margin of safety in dollars	112000	=616000-504000
Margin of safety in percentage	18.18%	=112000/616000
5
CM ratio	30%	=12/40
Net operating income increase	19800	=66000*30%