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: Sales Variable expenses $314,000 219,800 2 20 14 94,200 6,800 Fixed expenses s 17,400 Required: 1. What is the monthly break-even point in unit sales and in dollar sales? units Break-even point in unit sales 2. Without resorting to computations, what is the total contribution margin at the break-even point? Total contribution margirn

Solution

1) Break even point in unit sales 12800 units Break even point in sales dollars $    2,56,000 Working; a. Break even point in unit sales = Fixed Expense / Contribution Margin per unit = $       76,800 / $                     6 =            12,800 b. Contribution margin ratio = Contribution Margin / Sales = $                  6 / $                   20 30% c. Break even point in sales dollars = Fixed Expense / Contribution Margin ratio = $       76,800 / 30% = $    2,56,000 2) Total Contribution Margin $       76,800 At Berak even point, there is neither loss nor profit.All contribution margin is equal to fixed expense. so, At breakeven point , contribution margin is equal to total fixed expense. 3-a) Units sold            17,200 Units Working: Fixed Expense a $       76,800 Target profit b $       26,400 Target Contribution Margin c=a+b $    1,03,200 Contribution Margin per unit d $                  6 Total Units sold e=c/d            17,200 3-b) Menlo Company Contribution Income Statement (At 17,200 units level) Total Per Unit Sales $    3,44,000 $             20 Variable expense $    2,40,800 $             14 Contribution Margin $    1,03,200 $               6 Fixed Expense $       76,800 Net Profit $       26,400 4) Dollars Percentage Margin of safety $ 58,000 18.47% Working: Margin of safety is the level of sales after break even point. Margin of Safety sales = Total Sales - Break even Sales So, a. Margin of Safety sales = $       3,14,000 - $ 2,56,000 = $           58,000 b. Margin of Safety sales (%) = $           58,000 / $ 3,14,000 = 18.47% 5) CM Ratio 30% Net Operating Income increases by $           18,900 Working: a. CM Ratio - Refer to working b. of part 1. b. Degree of operating leverage = Contribution Margin / Net Operating Income = $ 94,200.00 / $     17,400.00 =                5.41 c. Increase in sales = $       63,000 / $       3,14,000 = 20.06% d. Increase in Net Operatig Income (%) = Increase in sales x Degree of operating leverage = 20.06% x                    5.41 = 108.62% e. Increase in Net Operating Income ($) = $       17,400 x 108.62% = $       18,900