Question

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 units sold and in sales dollars?
2. Without resorting to computations, what is the total contribution margin at the break-even point?
3. How many units would have to be sold each month to earn a target profi t of $90,000? Use the
formula method. 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 percent-
age terms.
5. What is the company’s CM ratio? If sales increase by $50,000 per month and there is no
change in fi xed expenses, by how much would you expect monthly net operating income to
increase?

Answer 1