Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow Sales Variable expenses Contribution margin Fixed expenses Net operating income Total $ 384,eee 212,8ee 91, zee 73, 2ee $ 18,eee Per Unit $20 14 $ 6 Required: 1 What is the monthly break-even point in unit sales and in dollar sales? 2 Without resorting to computations, what is the total contribution margin at the break-even point? 3-a. How many units would have to be sold each month to attain a target profit of $34.2007 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 $87,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A Reg 4 Reg 5 What is the monthly break-even point in unit sales and in dollar sales? Break-even point in unit sales

Answer 1

(1)

Break Even Point in unit sales	12200 units
Break Even point in dollar sales	$244000

Break Even Point in unit sales = Fixed Cost/Contribution per unit

= $73200/$6 = 12200 units

Break Even point in dollar sales = Break Even Point in unit sales * SP per unit

= 12200 units * $20 = $244000

(2) At Break Even point :-

Contribution Margin = Fixed cost

i,e $73200

(3) Target Profit = $34200

Let X be the units sold

Units sold (SP - VC) - Fixed cost = Target profit

X ($20 - $14) - $73200 = $34200

X = 17900 units

(4) Margin of Safety in dollars = Actual Sale - Break Even Point

= $304000 - $244000 = $60000

Margin of Safety in Percentage = Margin of Safety in dollars/Actual Sale

= $60000/$304000 = 19.74%

(5) CM Ratio = Contribution/Sale * 100

= $91200/$304000 * 100 = 30%

If sale increase in $87000 then Net operating income increase by ($87000 * 30%) = $26100