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Homework answers / question archive / Menlo Company distributes a single product
Menlo Company distributes a single product. The company's sales and expenses for last month follow
sxkxx $ 600,000 420,000 § 40 28 Verdable expenses Contribution bargdn 180,000 153,600 5 12 Fixed expapa Pt opreting ilIC $ 6,400
Required: t 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 $57,600? 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 &safety in both dollar and percentage terms. &What is the canTanY's mt.? 4.. increase by $54.000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
1)
(a) Breakeven Point in Unit Sales = Fixed cost / Contribution margin per unit
= 153,600 / 12
= 12,800 Units
(b) Breakeven Point in Dollar Sales = 12,800 * $40 = $512,000
2) Total contribution margin at Breakeven Point shall be equal to Fixed Cost = $ 153,600
3-a) Required Sales = (Fixed COst + Target Profit)/Contribution Margin per Unit
= ($153,600+$57,600)/$12
= 17,600 units
3-b)
| Menlo Company | |
| Contribution Income Statement | |
| Particulars | Amount ($) |
| Sales (17,600 units*$40) | 704000 |
| Less: Variable Expenses (17,600*$28) | 492800 |
| Contribution Margin | 211200 |
| Less: Fixed Expenses | 153600 |
| Net Operating Income | 57600 |
4)
Margin of safety in Dollars = Actual Sales - Breakeven Sales
= 600000 - 512000
= $88,000
Margin of safety in % = 88000 / 600000 * 100 = 14.67%
5)
CM ratio remains same, unless there is change in selling price per unit or variable cost per unit
CM Ratio = 12 / 40 * 100 = 30 %
Net operating income increase by = 54,000 * 30% = $16,200
