Question 3 Menlo Company distributes a single product. The company\'s sales and

Question

Question 3 Menlo Company distributes a single product. The company's sales and expenses for last month follow Sales 310,000 217,000 20 14 Variable expenses Contribution margin 93,000 72,000 Fixed expenses Net operating income $ Required: 1) What is the monthly break-even point in unit sales and in dollar sales? 21,000 Without resorting to computations, what is the total contribution margin at the break-even point? 2) How many units would have to be sold each month to earn a target profit of S42.000? Use the formula method. 3-a) 3-b) Verify your answer by preparing a contribution format income statement at the target sales 4) Refer to the original data. Compute the company's margin of safety in both dollar and 5) What is the company's CM ratio? If monthly sales increase by s99,000 and there is no level percentage terms change in fixed expenses, by how much would you expect monthly net operating income to increase?

Explanation / Answer

1) Break even point in unit sales = Fixed expenses/Contribution margin per unit = $           72,000 / $               6 = 12000 Break even point in dollar sales = Fixed expenses/Contribution margin ratio = $           72,000 / 30% = $       2,40,000 Working: Contribution Margin (CM) ratio = Contribution Margin / Sales = $               6.00 / $         20.00 = 30% 2) $ 72,000 At break even point there is no loss or no profit.So, Contribution Margin is equal to fixed expense. 3-a) Required units to be sold = Required sales/Sales price per unit = $       3,80,000 / $       20.00 =               19,000 Working: i. Required sales = Required Contribution Margin/CM Ratio = $       1,14,000 / 30% = $       3,80,000 ii. Required contribution margin = fixed expenses+Target Profit = $           72,000 + $       42,000 = $       1,14,000 3-b) Total Per unit Sales $ 3,80,000 $             20.00 Variable expenses $ 2,66,000 $                   14 Contribution Margin $ 1,14,000 $                     6 Fixed Expenses $     72,000 Net Operating Income $     42,000 4) Margin of safety in dollars = Total Sales-Break even sales = $       3,10,000 - $ 2,40,000 = $           70,000 Margin of safety in percentage = Margin of safety in dollars / Total Sales = $           70,000 / $   3,10,000 = 22.58% 5) CM Ratio = 30% Increase in monthly net income = Increase in sales x CM Ratio = $           99,000 x 30% = $           29,700

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.