Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total Per...

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Accounting

Menlo Company distributes a single product. The company’s salesand expenses for last month follow:
Total
Per Unit
  Sales
$
312,000
$20

  Variable expenses
218,400
14

  Contribution margin
93,600
$6

  Fixed expenses
74,400
  Net operating income
$
19,200

1. What is the monthly break-even point in unit sales and in dollarsales?
2. Without resorting to computations, what is the totalcontribution margin at the break-even point?
3-a. How many units would have to be sold each month to earn atarget profit of $39,600? Use the formula method.
3-b. Verify your answer by preparing a contribution formatincome statement at the target sales level.
4. Refer to the original data. Compute the company's margin ofsafety in both dollar and percentage terms. Round yourpercentage answer to 2 decimal places (i.e .1234 should be enteredas 12.34).
5. What is the company’s CM ratio? If monthly sales increase by$90,000 and there is no change in fixed expenses, by how much wouldyou expect monthly net operating income to increase?

Answer & Explanation Solved by verified expert

4.4 Ratings (899 Votes)

Total Per Unit No of Units 1 sales 312000 20 15600 31200020 Variable Expenses 218400 14 Contribution Margin 93600 6 Fixed Expenses 74400 Break Even Point in unit sales Fixed Cost Contribution per unit 12400 744006 Break Even point in dollar sales 248000 See Answer

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	Total		Per Unit
Sales	$	312,000	$20
Variable expenses		218,400	14

Contribution margin		93,600	$6
Fixed expenses		74,400

Net operating income	$	19,200


1. What is the monthly break-even point in unit sales and in dollarsales? 2. Without resorting to computations, what is the totalcontribution margin at the break-even point? 3-a. How many units would have to be sold each month to earn atarget profit of $39,600? Use the formula method. 3-b. Verify your answer by preparing a contribution formatincome statement at the target sales level. 4. Refer to the original data. Compute the company's margin ofsafety in both dollar and percentage terms. Round yourpercentage answer to 2 decimal places (i.e .1234 should be enteredas 12.34). 5. What is the company’s CM ratio? If monthly sales increase by$90,000 and there is no change in fixed expenses, by how much wouldyou expect monthly net operating income to increase?