Question

Menlo Company distributes a single product. The company’s sales and expenses for last month follow:

	Total			Per Unit
Sales	$	604,000		$	40
Variable expenses		422,800			28
Contribution margin		181,200		$	12
Fixed expenses		150,000
Net operating income	$	31,200

Required:

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 $81,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Answer 1

Requirement: 4 Margin of safety Dollars = Actual sales - Bep sales Actual sales Bep sales Margin of safety Dollars 604000 500000 104000 Margin of safety Percentage =( Margin of safety / Actual sales ) *100 Margin of safety Actual sales Margin of safety Percentage 104000 604000 17.22 % Requirement: 5 Contribution margin Ratio = Contribution margin / Sales Contribution margin Selling price per unit Contribution margin ratio 12.00 40.00 30.00 % Expected total contibution margin (685,000 * 30%) Present total contribution margin (604,000 * 30%) Net operating income increased by 205500 181200 24300