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: rJrnii S 40 28 Total Sales Variable expenses $628,000 439,600 188,400 152,400 s 12 Contribution margin Fixed expenses Net operating income $36,000 Required 1. What is the monthly break-even point in unit sales and in dollar sales? units Break-even point in unit sales Break-even point in sales dollars 2. Without resorting to computations, what is the total contribution margin at the break-even point? Total contribution margin 3-a. How many units would have to be sold each month to earn a target profit of $72,000? Use the formula method Units solo

Solution

1 Sales price 40 Variable cost 28 Contribution margin 12 CM ratio = Contribution margin / sales price 30% Breakeven in units = Fixed cost / contribution margin Fixed cost 152400 Contribution margin 12 Break even in units 12700 Units Break even in dollars = Fixed cost / CM ratio Fixed cost 152400 CM ratio 30% Break even in dollars 508000 Dollars 2 Contribution margin at breakeven 152400 3 Sales in units = (Target profit +Fixed cost) / Cointribution Margin per unit Fixed cost 152400 Target profit 72000 Total 224400 Contribution margin 12 Sales in units 18700 Units 3b Income statement Amount Per unit Sales 748000 40 Variable cost 523600 28 Contribution Margin 224400 12 Fixed cost 152400 Net operating income 72000 4 Margin of safety = (actual sales - breakeven sales)/actual sales Actual sales 628000 Breakeven sales 508000 Margin of safety in dollars 120000 Margin of safety percentage 19% (120000/628000) 5 CM ratio 30% Increase in sales 67000 Increase in operating income 20100 (30%*67000)