Refer to the original data. Compute the company\'s margin of safety in both doll
ID: 2522517 • Letter: R
Question
Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).
What is the company’s CM ratio? If monthly sales increase by $96,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
Explanation / Answer
Answer 1
Break even point in units = Fixed Costs / Contribution per unit = $152,400 / $12 = 12,700 units
Break even point in dollors = Break even point in units * selling price per unit = 12,700 units * $40 = $508,000
Answer 2
Total contribution margin at the break-even point = Total Fixed cost = $152,400
Answer 3a
Target profit = $66,000
Target Contribution = Target profit + Fixed costs = $66,000 + $152,400 = $218,400
Units to be sold to achieve target profit = Target Contribution / Contribution margin per unit
= $218,400 / $12 = 18,200 units
Answer 3b
Income Statement
Answer 4
Margin of safety in dollar = Actual Sales - Break even sales = $608,000 - $508,000 = $100,000
Margin of safety percentage = Margin of safety in dollar / Actual Sales = $100,000 / $608,000 = 16.45 %
Answer 5
Company’s CM ratio = Contribution margin per unit / Sales per unit = $12 / $40 = 30 %
Increase in Sales = $96,000
Increase in contribution = $96,000* 30 % = $28,800
Increase in net operating income = Increase in contribution = $28,800
Particulars Amount ($) Sales (18,200 * 40) 728,000 Less : Variable costs (18,200 * 28) 509,600 Contribution 218,400 Less Fixed Costs 152,400 Net profit $66,000Related Questions
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