Question

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, 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 $40,800?

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 $91,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Answer #1

BEP (Units) = Fixed exp/Contribution Margin per unit = 72600/6 =
12,100 Units

BEP (Sales $) = 12,100*$20 = $242,000

2. Fixed exp = $72,600

3.

Total Contribution = Fixed exp + Target Profit = 72600+40800 =
$113,400

So No of Units sold = 113400/Contribution per unit = 113400/6 =
18,900 units

4. MOS = (Total Sales - BEP Sales) = $318000 - $242000 =
$76,000

MOS % = Margin of safety in dollars / Total budgeted or actual
sales

= $76000/$318,000 = 23.90%

5. CM Ratio = Total Contribution/Sales = 95400/318000 = 30%

Net Operating Income Increased by = Inc in Sales*CM Ratio =
30%*$91000 = $27,300

Exercise 6-14 Break-Even and Target Profit Analysis [LO6-3,
LO6-4, LO6-5, LO6-6]
Lindon Company is the exclusive distributor for an automotive
product that sells for $56.00 per unit and has a CM ratio of 30%.
The company’s fixed expenses are $411,600 per year. The company
plans to sell 29,300 units this year.
Required:
1. What are the variable expenses per unit? (Round your
"per unit" answer to 2 decimal places.)
2. What is the break-even point in unit sales and in...

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...

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
$
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
$
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...

Break-Even Units, Contribution Margin Ratio, Margin of
Safety
Khumbu Company's projected profit for the coming year is as
follows:
Total
Per Unit
Sales
$3,331,250
$41.00
Total variable cost
999,375
12.30
Contribution
margin
$ 2,331,875
$ 28.7
Total fixed cost
1,009,369
Operating income
$ 1,322,506
Required:
1. Compute the break-even point in units. If
required, round your answer to nearest whole value.
units
2. How many units must be sold to earn a profit
of $240,000? If required, round your answer...

Break-Even Units, Contribution Margin Ratio, Margin of
Safety
Khumbu Company's projected profit for the coming year is as
follows:
Total
Per Unit
Sales
$2,030,000
$40.00
Total variable cost
568,400
11.20
Contribution margin
$ 1,461,600
$ 28.8
Total fixed cost
539,980
Operating income
$ 921,620
Required:
1. Compute the break-even point in units. If
required, round your answer to nearest whole value.
units
2. How many units must be sold to earn a profit
of $240,000? If required, round your answer...

Break-Even Units,
Contribution Margin Ratio, Margin of Safety
Khumbu Company's
projected profit for the coming year is as follows:
Total
Per Unit
Sales
$3,150,000
$45.00
Total variable cost
819,000
11.70
Contribution
margin
$2,331,000
$ 33.3
Total fixed cost
819,000
Operating income
$1,512,000
Required:
1.
Compute the break-even point in units. If required, round your
answer to nearest whole value.
______ units
2.
How many units must be sold to earn a profit of $240,000? If
required, round your answer to...

Contribution Margin Ratio, Break-Even Sales Revenue, Sales
Revenue for Target Profit
Schylar Pharmaceuticals, Inc., plans to sell 140,000 units of
antibiotic at an average price of $17 each in the coming year.
Total variable costs equal $761,600. Total fixed costs equal
$7,500,000.
Required:
1. What is the contribution margin per unit?
Round your answer to the nearest cent.
$
What is the contribution margin ratio? Round your answer to two
decimal places. (Express as a decimal-based answer rather than a...

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