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 Per Unit $ 20 Total Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 310,000 217,000 93,000 75,000 $ 18,0e0 14 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 $35,400? 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 5. What is the company\'s CM ratio? If sales increase by $57000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Solution

(1) Break Even Pint :-

BEP (in units)

12500 units

BEP (in $ sales)

$250000

BEP (in units) = Fixed cost/Contribution per unit

  = 75000/6 = 12500 units

BEP ($) = 12500 units * $ 20            

(2) Contribution at Breakeven point =

At BEP Contribution = Fixed Cost

    = 75000

(3a) Target Profit = 35400

Let “X” be the units sold

Sale – VC – FC = 35400

(20 * X) – (14 * X) – 75000 = 35400

6 X = 110400

X = 18400 units

(3b)

Total

Per unit

Sales (18400 * 20)

368000

20

Variable Exp (18400 * 14)

257600

14

Contribution Margin

110400

6

Fixed Exp

75000

Net Operation Income

35400

(4)

Dollars

Percentage

MOS

60000

19.35%

Margin of Safety ($)= Actual Sale – BEP

   = 310000 – 250000 = $ 60000

MOS (%) = 60000/310000 = 19.35%

(5)

CM Ratio

30%

Net Operating Income increase by

$ 17100

CM Ratio = (Total Revenue – Variable cost)/Total Revenue

           = (310000 – 217000)/310000 = 30%

If sale increase by $ 57000 & no change in Fixed cost then:-

Net Operating Income increase by = 57000 * 30% = $ 17100

BEP (in units)	12500 units
BEP (in $ sales)	$250000