Question

SIMPLE manufactures and sells a single product. The company’s sales and expenses for last quarter follow: Total Per Unit Sales $600,000 $40 Less: Variable Expenses $420,000 $28 Contribution Margin $180,000 $12 Less: Fixed Expenses $146,520 Net Operating Income $33,480 Required: What is the monthly break-even point in units sold and in sales dollars? Without resorting to computations, calculate the total contribution margin at the break-even point. How many units would have to be sold each quarter to earn a target profit of $18,000? Use the formula method. Verify your answer by preparing a contribution format income statement at the target level of sales. Refer to the original data. Compute the company’s margin of safety for the quarter in both dollar and percentage terms. What is the company’s CM ratio? If quarterly sales increase by $80,000 and there is no change in fixed expenses, by how much would you expect quarterly net operating income to increase? (Do not prepare an income statement; use the CM ratio to calculate your answer.)

Answer #1

1) Break even unit = 146520/12 = 12210 Units

Break even sales = 12210*40 = $488400

2) Total Contribution margin at break even = Fixed cost = $146520

3) Required unit = (146520+18000)/12 = 13710 Units

Contribution margin income statement

Total | Per unit | |

Sales | 13710*40 = 548400 | 40 |

Variable cost | 383880 | 28 |

Contribution margin | 164520 | 12 |

Fixed cost | 146520 | |

Net income | 18000 |

4) Margin of safety = 600000-488400 = 111600

Margin of safety (%) = 111600/600000 = 18.6%

5) CM ratio = 12/40 = 30%

Net operating income increase by 80000*30% = 24000

QUESTION 2
SPI-K manufactures and sells a single product. The company’s
sales and expenses for last quarter follow:
Total
Per Unit
Sales
$600,000
$40
Less: Variable Expenses
$420,000
$28
Contribution Margin
$180,000
$12
Less: Fixed Expenses
$146,520
Net Operating Income
$33,480
Required:
What is the monthly break-even point in units sold and in sales
dollars?
Without resorting to computations, calculate the total
contribution margin at the break-even point.
How many units would have to be sold each quarter to earn...

Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
316,000
$
20
Variable
expenses
221,200
14
Contribution
margin
94,800
$
6
Fixed
expenses
78,000
Net operating
income
$
16,800
Required:
1. What is the monthly break-even point in unit sales and in
dollar sales?
Break Even Point in unit sales
Break
Even Point in dollar sales
2. Without resorting to computations, what is the total
contribution margin at...

Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
302,000
$
20
Variable expenses
211,400
14
Contribution margin
90,600
$
6
Fixed expenses
73,200
Net operating income
$
17,400
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...

Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
600,000
$
40
Variable expenses
420,000
28
Contribution margin
180,000
$
12
Fixed expenses
148,800
Net operating income
$
31,200
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...

Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
310,000
$
20
Variable expenses
217,000
14
Contribution margin
93,000
$
6
Fixed expenses
73,200
Net operating income
$
19,800
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...

Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
318,000
$
20
Variable expenses
222,600
14
Contribution margin
95,400
$
6
Fixed expenses
76,800
Net operating income
$
18,600
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...

CHAPTER 6 HOMEWORK
Exercise 6-18 Break-Even and Target Profit Analysis; Margin of
Safety; CM Ratio [LO6-1, LO6-3, LO6-5, LO6-6, LO6-7]
Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total
Per Unit
Sales
$
318,000
$
20
Variable expenses
222,600
14
Contribution margin
95,400
$
6
Fixed expenses
72,600
Net operating income
$
22,800
Required:
1. What is the monthly break-even point in unit sales and in
dollar sales?
2. Without resorting to computations,...

MENTO COMPANY distributes a single product. The company's sales
and expenses for last month follow: The company sales 15,000 units
last month.
Sales ....................... (15,000 units)
....................$ $450,000
Variable expenses
.............................................
180,000
Contribution margin
............................................. $ 270,000
Fixed expenses
................................................... 216,000
Net operating income ...........................................
. $ 54,000
REQUIRED
1. What is the monthly BREAK EVEN POINT in units and dollar
sales?
2. What is the Contribution Margin at the Break Even Point ?
3. How many units...

Sales (10,000 units)
S1,500,000
Less: variable expenses
900,000
Contribution margin
600,000
Less: fixed expenses
400,000
Operating income
$200,000
1-What is the company's contribution margin ratio? *
2-What is the company's break-even in dollar? *
3-If sales increase by 100 units, by how much should operating
income increase? *
4-How many units would the company have to sell to attain
target operating income of $230,000? *
5-What is the company's margin of safety in dollars? *

Sales
$60,000
Less: Variable Expenses
45,000
Contribution Margin
15,000
Less: Fixed Expenses
18,000
Net Income
-$3,000
a. What are the total sales in dollars at the break-even
point?
b. What are the total variable expenses at the break-even
point?
c. What is the company's contribution margin ratio?
d. If unit sales were increased by 10% and fixed expenses were
reduced by $2,000, what would be the company's expected net income?
(Prepare a new income statement.)

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