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 Total $ 624,000 436,800 187,200 145,200 $ 42,000 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 $82,800? 3-b. Verify your answer by preparing alcontribution 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 $51,000 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 Reg 2 Reg 3A Reg 38 Reg 4 Reg 5 Without resorting to computations, what is the total contribution margin at the break-even point? Total contribution margin < Reg1 Req3A >

Answer 1

Question - 1

(a) BEP ( UNITS) = Fixed cost / Contribution margin per unit = 145,200 / 12 = 12,100 Units

(b) BEP ( In Dollars) = break even point in units * selling price

12,100 * 40 = $ 484,000

Question - 2

Total contribution margin at BEP shall be equal to FIXED COST = $ 145,200

Otherwise..........12100 units *12 = 145,200

Question - 3

(a) Sale required ( in Units ) = (Fixed cost + desired Profit ) / contribution per unit = (145,200 + 82,800) / 12

= 19,000 Units

(b)

Question - 4

	Total	Per Unit
Sales ( 19,000 * 40)	760,000	40
(-) Variable cost (19,000*28)	532,000	28
Contribution	228,000	12
(-) Fixed cost	145,200
Profit	82,800

Question - 4

Margin of safety ( Dollar) = Sales - BEP = 624,000 - 484000 = $ 140,000

Margin of safety ( % of sales) = 140,000 / 624,000 * 100 = 22.43 %

Question - 5

CM ratio remains same, unless there is change in selling price per unit or variable cost per unit

CM Ratio = 12 / 40 * 100 = 30 %

Net operating income increase by = 51000 * 30% = 15,300

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