Question

Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Please answer 3A - 5

Exercise 5-18 (Algo) Break-Even and Target Profit Analysis; Margin of Safety; CM Ratlo [LO5-1, LO5-3, LO5-5, LO5-6, LO5-7] 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 Total $ 640,000 448,000 192.ee 146,400 $ 45,600 Per Unit $ 40 28 $ 12 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 $64.800? 3-6. 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 the company can sell more units thereby increasing sales by $71.000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating Income to Increase? Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Req 3A Req 3B Reg 4 Reg 5 Verify your answer by preparing a contribution format income statement at the target sales level. Menlo Company Contribution Income Statement Total Per Unit 0 $ 0 $ 0 < Req 3A Req 4 >

Answer 1

3A)

Unit sales to attain target profit:

= ($64,800 + $146,400) / $12

= 17,600

3B)

	Total	Per Unit
Sales	$704,000	$40
Variable expenses	$492,800	$28
Contribution margin	$211,200	$12
Fixed expense	$146,400
Net operating income	$64,800

4)

Margin of safety:

Dollars:

= $640,000 - $488,000

= $152,000

Percentage:

= ($640,000 - $488,000) / $640,000

= 23.75%

5)

CM ratio = $12 / $40

= 30%

Net operating income increased by:

= $71,000 X 30%

= $21,300