In: Accounting
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: |
Total | Per Unit | ||||
Sales | $ | 628,000 | $ | 40 | |
Variable expenses | 439,600 | 28 | |||
Contribution margin | 188,400 | $ | 12 | ||
Fixed expenses | 147,600 | ||||
Net operating income | $ | 40,800 | |||
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 $76,800? Use the formula method. |
3-b. | Verify your answer by preparing a contribution format income statement at the target sales level. |
4. |
Refer to part 3 and now assume that the tax rate is 40%. How many units would need to be sold each month to an after-tax target profit of $76,800? (Round the final answer to the nearest whole number.) |
5. |
Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. (Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).) |
6. |
What is the company’s CM ratio? If monthly sales increase by $61,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? |