Question
In: Accounting
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
| Menlo Company distributes a single product. The company’s sales and expenses for last month follow: |
| Total | Per Unit | ||||
| Sales | $ | 608,000 | $ | 40 | |
| Variable expenses | 425,600 | 28 | |||
| Contribution margin | 182,400 | $ | 12 | ||
| Fixed expenses | 152,400 | ||||
| Net operating income | $ | 30,000 | |||
| 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 $66,000? 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. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34). |
| 5. |
What is the company’s CM ratio? If monthly sales increase by $96,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? |
Solutions
Expert Solution
Answer 1
Break even point in units = Fixed Costs / Contribution per unit = $152,400 / $12 = 12,700 units
Break even point in dollors = Break even point in units * selling price per unit = 12,700 units * $40 = $508,000
Answer 2
Total contribution margin at the break-even point = Total Fixed cost = $152,400
Answer 3a
Target profit = $66,000
Target Contribution = Target profit + Fixed costs = $66,000 + $152,400 = $218,400
Units to be sold to achieve target profit = Target Contribution / Contribution margin per unit
= $218,400 / $12 = 18,200 units
Answer 3b
Income Statement
| Particulars | Amount ($) |
|---|---|
| Sales (18,200 * 40) | 728,000 |
| Less : Variable costs (18,200 * 28) | 509,600 |
| Contribution | 218,400 |
| Less Fixed Costs | 152,400 |
| Net profit | $66,000 |
Answer 4
Margin of safety in dollar = Actual Sales - Break even sales = $608,000 - $508,000 = $100,000
Margin of safety percentage = Margin of safety in dollar / Actual Sales = $100,000 / $608,000 = 16.45 %
Answer 5
Company’s CM ratio = Contribution margin per unit / Sales per unit = $12 / $40 = 30 %
Increase in Sales = $96,000
Increase in contribution = $96,000* 30 % = $28,800
Increase in net operating income = Increase in contribution = $28,800
ekkarill92 answered 1 year agoRelated Solutions
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
302,000
$
20
Variable expenses
211,400
14
Contribution margin
90,600
$
6
Fixed expenses
77,400
Net operating income
$
13,200
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...
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
Menlo Company distributes a single product. The company’s sales
and expenses for last month follow: Total Per Unit Sales $ 620,000
$ 40 Variable expenses 434,000 28 Contribution margin 186,000 $ 12
Fixed expenses 148,800 Net operating income $ 37,200
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...
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
612,000
$
40
Variable expenses
428,400
28
Contribution margin
183,600
$
12
Fixed expenses
147,600
Net operating income
$
36,000
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...
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
Menlo Company distributes a single product. The company’s sales
and expenses for last month follow: Total Per Unit Sales $ 624,000
$ 40 Variable expenses 436,800 28 Contribution margin 187,200 $ 12
Fixed expenses 154,800 Net operating income $ 32,400 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...
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
306,000
$
20
Variable expenses
214,200
14
Contribution margin
91,800
$
6
Fixed expenses
76,200
Net operating income
$
15,600
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...
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
608,000
$
40
Variable expenses
425,600
28
Contribution margin
182,400
$
12
Fixed expenses
151,200
Net operating income
$
31,200
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...
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
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. ....
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
304,000
$
20
Variable expenses
212,800
14
Contribution margin
91,200
$
6
Fixed expenses
73,200
Net operating income
$
18,000
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...
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
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...
Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total...
Menlo Company
distributes a single product. The company’s sales and expenses for
last month follow:
Total
Per Unit
Sales
$
616,000
$
40
Variable
expenses
431,200
28
Contribution
margin
184,800
$
12
Fixed
expenses
147,600
Net operating
income
$
37,200
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...
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