Question

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 the break-even point?

          Total contribution margin

3-a. How many units would have to be sold each month to attain a target profit of $29,400?

          Units sales needed to attain target profit

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

            Contribution Income statement

4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.

            Margin of safety Dollars and Percentage

5. What is the company’s CM ratio? If sales increase by $80,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

            CM ratio

            Net Operating income increase by

Answer 1