Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Total 604,000 422,800 181,200 147,600 Per Unit $ 40 Sales Variable expenses Contribution margin Fixed expenses Net operating income 28 $ 12 $ 33,600 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 $76,800? 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 $68,000 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 Req 1 Req 2 Req 3A Req 3B Req 4 Req 5 How many units would have to be sold each month to attain a target profit of $76,800? Units sales needed to attain target profit Req2 Req 3B >

Answer 1

1) Break even point = 147600/12 = 12300 Unit

Break even sales = 12300*40 = $492000

2) Total Contribution margin on break even = Fixed cost = $147600

3a) Target unit = (147600+76800)/12 = 18700 Units

3b) Contribution margin income statement

	Total	Per unit
Sales	748000	40
Variable cost	523600	28
Contribution margin	224400	12
Fixed cost	147600
Net operating income	76800

4) Margin of safety in dollars = 604000-492000 = 112000

Margin of safety percentage = 112000/604000 = 18.54%

5) Contribution margin ratio = 12/40 = 30%

Net operating income increase by = 68000*30% = 20400