Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Menlo Company distributes a single product
| Menlo Company distributes a single product. The company’s sales and expenses for last month follow: |
| Total | Per Unit | ||||
| Sales | $ | 450,000 | $ | 30 | |
| Variable expenses | 180,000 | 12 | |||
|
|
|
|
|
|
|
| Contribution margin | 270,000 | $ | 18 | ||
| Fixed expenses | 216,000 |
|
|
||
|
|
|
|
|||
| Net operating income | $ | 54,000 | |||
|
|
|
|
|||
|
|
|||||
| 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 earn a target profit of $90,000? Use the formula method. |
| 3-b. | Verify your answer by preparing a contribution format income statement at the target sales level. |
| 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 monthly sales increase by $50,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? |
Expert Solution
Answer 1.
Selling Price per unit = $30
Contribution Margin per unit = $18
Fixed Expenses = $216,000
Breakeven Point in unit sales = Fixed Expenses / Contribution Margin per unit
Breakeven Point in unit sales = $216,000 / $18
Breakeven Point in unit sales = 12,000
Breakeven Point in dollar sales = Breakeven Point in unit sales * Selling Price per unit
Breakeven Point in dollar sales = 12,000 * $30
Breakeven Point in dollar sales = $360,000
Answer 2.
At breakeven point:
Total Contribution Margin = Fixed Expenses
Total Contribution Margin = $216,000
Answer 3-a.
Target Profit = $90,000
Required Sales in unit = (Fixed Expenses + Target Profit) / Contribution Margin per unit
Required Sales in unit = ($216,000 + $90,000) / $18
Required Sales in unit = 17,000
Answer 3-b.
PFA
Answer 4.
Margin of Safety in dollars = Sales - Breakeven Point in dollar sales
Margin of Safety in dollars = $450,000 - $360,000
Margin of Safety in dollars = $90,000
Margin of Safety in percentage = Margin of Safety in dollars / Sales
Margin of Safety in percentage = $90,000 / $450,000
Margin of Safety in percentage = 20%
Answer 5.
CM Ratio = Contribution Margin per unit / Selling Price per unit
CM Ratio = $18 / $30
CM Ratio = 0.60
Increase in Sales = $50,000
Increase in Net Operating Income = CM Ratio * Increase in Sales
Increase in Net Operating Income = 0.60 * $50,000
Increase in Net Operating Income = $30,000
PFA
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
