Question

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 have to be sold to earn a profit of $90,000 ?

4. Refer to original data, compute the MARGING OF SAFETY in dollars .

Answer 1

Answer 1

BREAK EVEN POINT in units = 12,000 units

BREAK EVEN POINT in dollar sales = $ 360,000

Calculations:

BREAK-EVEN POINT in units = Fixed Cost / Contribution per unit

= $ 216000 / $ 18

= 12,000 units

BREAK EVEN POINT in dollar sales = 12,000 * 30

= $ 360,000

Answer 2

Contribution Margin at the Break Even Point = $ 216,000

Calculations:

Contribution Margin at the Break Even Point =Sales units * Contributon per unit

= 12,000 * 18

= 216,000

Answer 3

Units to be sold to earn a profit of $90,000 = 17,000 units

Calculations:

Units to be sold to earn a profit of $90,000 =  ( Fixed Cost + Profit ) / Contribution per unit

= ($ 216000 + 90,000) / $ 18

= 17,000 units

Answer 4

MARGIN OF SAFETY = $ 90,000

Calculations:

MARGIN OF SAFETY = Profit / Contribution ratio

= $ 54,000 / 0.6

= $ 90,000

In case of any doubt, please comment.