Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Sales…
The following solution is suggested to handle the subject “Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Sales…“. Let’s keep an eye on the content below!
Question “Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Sales…”
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
Sales Variable expenses Contribution margin Fixed expenses Net operating income Total $ 312,000 218,400 93,600 75,600 $ 18,000 Per Unit $20 14 $ 6
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 $29,400? 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 $70,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
|Ans. 1||Break even point in unit sales = Fixed expenses / Contribution margin per unit|
|$75,600 / $6|
|Breakeven point in dollars sales = Breakeven in units|
|12,600 * $20|
|Ans. 2||At break-even point, the company’s contribution margin equals its fixed|
|Operating income is less than the break-even level of sales.|
|The company is gone and the operating income is what makes it different.|
|Fixed cost and contribution margin|
|Contribution margin = $75,600.|
|Ans. 3 a||Unit sales to target profit = (Fixed expenses + Target profit / Contribution margin per units|
|($75,600 + $29,400) / $6|
|$105,000 / $6|
|Ans. 3 b||MENLO COMPANY|
|CVP Income Statement|
|Sales (17,500 *p)||$350,000||$20.00|
|Variable expenses (17,500 * v)||-$245,000||-$14.00|
|Margin of contribution||$105,000||$6.00|
|Net operating income (Target Profit)||$29,400|
|P = price per unit|
|V = variable cost per unit|
|Ans. 4||Margin of Safety in Dollars = Actual Sales in Dollars – Break Even Sales in Dollars|
|$312,000 – $252,000|
|Margin percentage = Margin safety / Sales * 100|
|$60,000 / $312,000 * 100|
|Ans. 5||Contribution margin ratio = Contribution margin per unit / Selling price per unit * 100|
|$6 / $20 * 100|
|Increased contribution margin = Sales increases * Contribution margin ratio|
|$70,000 * 30%|
|*The change in sales does not affect the fixed cost so the incremental contribution margin will remain the same.|
|equal to the increase of net operating income.|
So the expected increase in net operating income would be|
Above is the solution for “Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Sales…“. We hope that you find a good answer and gain the knowledge about this topic of business.