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Exercise 6-18 Break-Even and Target Profit Analysis; Margin of Safety; CM Ratio [LO6-1, LO6-3, LO6-5, LO6-6,...

Exercise 6-18 Break-Even and Target Profit Analysis; Margin of Safety; CM Ratio [LO6-1, LO6-3, LO6-5, LO6-6, LO6-7]

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 attain a target profit of $90,000?

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 sales increase by $50,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

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Expert Solution

ekkarill92 answered 2 years ago
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