Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Total $310,000 217,000 Per Unit $ 20 14 Sales Variable expenses $ 6 Contribution margin Fixed expenses 93,000 72,000 $ 21,000 Net operating income Required: 1. What is the monthly break-even point in unit sales and in dollar sales? Break-even point in unit sales units Break-even point in sales dollars the break-even point? 2. Without resorting to computations, what is the total contribution margin Total contribution margin 3-a. How many units would have to be sold each month to earn a target profit of $41,400? Use the formula method. Units sold

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Answer 1

20 14 72000 Selling Price Per unit Varaibel Expense Per unit 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) 20 14 30% 1. Compute the Break Even pont 1 Break Even in Unit Sales =( Fixed Cost / CM Per unit)=(72000/6) 2.Brake Even in Dollar sales =( Fixed Cost/ CM ratio)=(72000/0.30) 12000 Units 240000 Dollars 2. Determine the Contribution Margin at the Break even point Contribution Margin at the Break even point = Fixed Cost 72000

18900 3. a) Units to get the target profit of $41,400 (Fixed cost + target profit)/ CM per unit =((72000+41,400)/6 3.B) Verify the answer with Contribution margin Income Statement Contribution Margin Statement sale Varaible Expenses Contibution margin Fixed Expenses Net Operating Income Total Per unit 378000 264600 113400 72000 41400 4. Units to get the After Tax Profot of $29,400 ((Fixed cost +( target profit)/(1-Tax))/ CM per unit 19000 Units 70000 Dollars 22.58% Percent 4. Compute the Margin of Safety Margin of Safety in dollars =(units *selling price - BEP Dollars)=(310000-240000) Margin of Safety in Percentage =(Margin of safety Dollars/ Actual sales ) 5 CM Ratio =( CM/Selling Price) Net Operating Income Increased by (0.30*57000) 30% 17100