ACCT20200 Chapter 5: Section 5.3
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Exercise 5-18 Break-Even and Target Profit Analysis; Margin ofSafety; CM Ratio [LO5-1, LO5-3, LO5-5, LO5-6, LO5-7]
Menlo Company distributes asingle product. The companyâs sales and expenses for last monthfollow: |
Total | Per Unit | ||||
Sales | $ | 308,000 | $ | 20 | |
Variableexpenses | 215,600 | 14 | |||
Contributionmargin | 92,400 | $ | 6 | ||
Fixed expenses | 72,600 | ||||
Net operatingincome | $ | 19,800 | |||
Required: | |
1. | What is themonthly break-even point in unit sales and in dollar sales? |
2. | Withoutresorting to computations, what is the total contribution margin atthe break-even point? |
3-a. | How many unitswould have to be sold each month to earn a target profit of$30,000? Use the formula method. |
3-b. | Verify your answerby preparing a contribution format income statement at the targetsales level. |
4. | Refer to the original data. Compute the company's margin ofsafety in both dollar and percentage terms. Round yourpercentage answer to 2 decimal places (i.e .1234 should be enteredas 12.34). |
5. | What is the companyâs CM ratio? If monthly sales increase by$81,000 and there is no change in fixed expenses, by how much wouldyou expect monthly net operating income to increase? |