Wesley Company manufactures and sells a single product. The company’s sales and

Question

Wesley Company manufactures and sells a single product. The company’s sales and expenses for last
quarter follow:

Without resorting to computations, calculate the total contribution margin at the break-even point.

Total contribution margin = ?

How many units would have to be sold each quarter to earn a target profit of $18,000? Use the formula method.

Units sold to attain target profit = ?

Refer to the original data. Compute the company’s margin of safety in both dollar and percentage terms. (Round "Percentage" answer to 1 decimal place, (i.e., 0.123 should be considered as 12.3%).)

What is the company’s CM ratio? If quarterly sales increase by $80,000 and there is no change in fixed expenses, by how much would you expect quarterly net operating income to increase? (Do not prepare an income statement; use the CM ratio to compute your answer.)

Wesley Company manufactures and sells a single product. The company’s sales and expenses for last
quarter follow:

Total Per Unit   Sales $ 600,000 $ 40   Less: Variable expenses 420,000 28   Contribution margin 180,000 $ 12   Less: Fixed expenses 150,000   Net operating income $ 30,000

1. What is the quarterly break-even point in units sold and in sales dollars? Break-even point in units sold Break-even point in sales dollars

Explanation / Answer

Solution:

(1). Break-Even Point Caluculation:

Break-Even Point = 1,50,000 / 12

= 12,500

(1)b. Break-Even Point In Dollars:

Break-Even Point In Dollars = 1,50,000 / 30 %

   = 5,000

(1)c. Contribution Margin Ratio :

  Contribution Margin Ratio = 1,80,000 / 6,00,000 * 100

   = 30 %

(1)1. Contribution Margin Coluculation:

Contribution Margin = 6,00,000 - 4,20,000

   = 1,80,000

(4). Margin of Safety:

Margin of Safety = 6,00,000 - 4,50,000 / 6,00,000

= 25%

     Margin of Safety Sales = Actual Sales - B.E.P Sales

   = 6,00,000 - 4,50,000

   = 1,50,000

(5). Contribution Margin Ratio:

Contribution Margin Ratio = 12 / 40 * 100

   = 30 %

  B.E.P in Units = Fixed Cost / Contribution Per Unit

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