Question

Problem 4-22 Break-Even and Target Profit Analysis; Margin of Safety; CM Ratio (LO5-1, LO5-3, LO5-5, LO5-6, LO5-7) + Menlo Company distributes a single product. The company's sales and expenses for last month follow: ints Sales Variable expenses Total $ 636,000 445,200 Per Unit $ 40 28 Skipped $ 12 Contribution margin Fixed expenses 190, 800 145,200 Net operating income $ 45, 600 eBook Ask Required: 1. What is the monthly break-even point in unit sales and in dollar sales? Print units Break-even point in unit sales Break-even point in sales dollars 2. Without resorting to computations, what is the total contribution margin at the break-even point? Total cากเilutenrirja

Answer 1

1) Break even unit = 145200/12 = 12100 Units

Break even sales = 12100*40 = $484000

2) Total Contribution margin at break even = $145200

3) Required unit = (145200+72000)/12 = 18100 Units

3b) Contribution margin income statement

	Total	Per unit
Sales	724000	40
Variable cost	506800	28
Contribution margin	217200	12
Fixed cost	145200
Net operating income	72000

4) Income before tax = 72000*100/70 = 102857

Required unit sales = (145200+102857)/12 = 20671 Units

5) Margin of safety

	Dollar	Percentage
Margin of safety	636000-484000 = 152000	152000/636000 = 23.90%

6) CM ratio = 12/40 = 30%

Net income increase by (72000*30%) = 21600