Question

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 month to attain a target profit of $33,600?

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 $51,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Answer #1

1) Break even unit = 73200/6 = 12200 Units

Break even Sales = 12200*20 = $244000

2) Contribution margin at break even = Fixed cost = 73200

3a) Target unit = (73200+33600)/6 = 17800 Units

3b) contribution margin

Sales | 356000 |

Variable cost | 249200 |

Contribution margin | 106800 |

Fixed cost | 73200 |

Operating income | 33600 |

4) Margin of safety = 310000-244000 = 66000

Margin of safety (%) = 66000/310000 = 21.29%

5) CM ratio = 6/20 = 30%

Sales increase by 51000 net operating income increase by (51000*30%) = 15300

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
$
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
$
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
$
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...

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...

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...

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...

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,...

The following information is available for a company’s
maintenance cost over the last seven months.
Month
Maintenance Hours
Maintenance Cost
June
9
$
4,590
July
18
7,110
August
12
5,430
September
15
6,270
October
21
7,950
November
24
8,790
December
6
3,750
Using the high-low method, estimate both the fixed and variable
components of its maintenance cost.
High-Low method - Calculation of variable cost per maintenance
hour
0
Total cost at the high
point
Variable costs at the high
point:...

Lindon Company is the exclusive distributor for an automotive
product that sells for $50.00 per unit and has a CM ratio of 30%.
The company’s fixed expenses are $345,000 per year. The company
plans to sell 27,200 units this year.
Required:
1. What are the variable expenses per unit?
2. What is the break-even point in unit sales and in dollar
sales?
3. What amount of unit sales and dollar sales is required to
attain a target profit of $195,000...

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