Question

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 to be sold each
month to earn a target profit of $30,000? Use the formula
method.

**3-b.** Verify your answer by preparing a
contribution format income statement at the target sales level.

**4.** Refer to part 3 and now assume that the tax
rate is 40%. How many units would need to be sold each month to an
after-tax target profit of $30,000? **(Round the
final answer to the nearest whole number.)**

**5.** Refer to the original data. Compute the
company's margin of safety in both dollar and percentage terms.
**(Round your percentage answer to 2 decimal places (i.e
.1234 should be entered as 12.34).)**

**6.** What is the company’s CM ratio? If monthly
sales increase by $75,000 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 = 76800/6 = 12800 Units

Break even sales = 12800*20 = 256000

2) Total Contribution margin = 76800

3a) Target unit = (76800+30000)/6 = 17800 Units

3b) Contribution margin income statement

Sales (17800*20) | 356000 |

Variable cost | 249200 |

Contribution margin | 106800 |

Fixed cost | 76800 |

Operating income | 30000 |

4) Target unit = (76800+50000)/6 = 21133 Units

5) Margin of safety = 318000-256000 = 62000

Margin of safety (%) = 62000/318000 = 19.50%

6) CM ratio = 6/20 = 30%

Net operating income increase by (75000*30%) = 22500

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
$
604,000
$
40
Variable expenses
422,800
28
Contribution margin
181,200
$
12
Fixed expenses
154,800
Net operating income
$
26,400
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 $ 300,000
$ 20 Variable expenses 210,000 14 Contribution margin 90,000 $ 6
Fixed expenses 77,400 Net operating income $ 12,600 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 to be sold each...

Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total Per Unit
Sales $320,000 $ 20
Variable expenses 224,000 14
Contribution margin 96,000 $ 6
Fixed expenses 75,000
Net operating income $ 21,000
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...

Menlo Company distributes a single product. The company’s sales
and expenses for last month follow:
Total Per Unit
Sales $ 320,000 $ 20
Variable expenses 224,000 14
Contribution margin 96,000 $ 6
Fixed expenses 75,000
Net operating income $ 21,000
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...

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...

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,...

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