Menlo Company distributes a single product The companys sale

Menlo Company distributes a single product. The company\'s sales and expenses for last month follow 40 28 $ 12 Sales Variable expenses Contribution margin Fixed expenses Net operating income 616,600 431,200 184,800 145,200 $39,600 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 month to attain a target profit of $60,000? 3-b. Verify your answer by preparing a contribution format income statement at the target sales level. 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 $80,000 per month and there is no change in fixed expenses, b would you expect monthly net operating income to increase? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 38 Req 4 Req S

Solution

1. Monthly break-even point in unit sales = Total fixed costs/Contribution margin per unit = $145200/$12 = 12100 units

Monthly break-even point in dollar sales = Total fixed costs/Contribution margin ratio = $145200/30% = $484000

Contribution margin ratio = Contribution margin/Sales = $12/$40 = 30%

2. At the break-even point, there is no profit/loss hence the contribution margin exactly equals the fixed costs. Thus, the total contribution margin at the break-even point is $145200.

3-a. Number of units to be sold = (Total fixed costs + Target profit)/Contribution margin per unit = ($145200 + $60000)/$12 = $205200/$12 = 17100 units

3-b.

Margin of safety = Actual sales - Break-even sales = $616000 - $484000 = $132000

Margin of safety percentage = Margin of safety/Actual sales = $132000/$616000 = 21.43%

Note: The margin of safety % is rounded off to 2 decimal places in absence of any instructions regarding the same.

5. Company\'s CM ratio = Contribution margin/Sales = $12/$40 = 30%

If sales increase by $80000 with fixed expenses remaining unchanged, net operating income will increase by $80000 x 30% = $24000

Contribution Format Income Statement
Sales (17100 x $40)	684000
Variable expenses (17100 x $28)	478800
Contribution margin	205200
Fixed expenses	145200
Net income	60000