Exercise5-11 Break-Even Analysis; Target Profit; Margin of Safety; CM Ratio[LO1, LO3, LO5, LO6, LO7]
Pringle Company distributes asingle product. The companyâs sales and expenses for a recent monthfollow:
Total
Per Unit
Sales
$
304,000
$
20
Variable expenses
212,800
14
Contribution margin
91,200
$
6
Fixed expenses
74,400
Net operating income
$
16,800
Required:
1. What is the monthlybreak-even point in units sold and in sales dollars? (Omit the "$"sign in your response.)
Break-even point in unitsales
units
Break-even point in salesdollars
$
2. Without resorting tocomputations, what is the total contribution margin at thebreak-even point? (Omit the "$" sign in your response.)
Total contribution margin
$
3. How many units would haveto be sold each month to earn a target profit of $31,800? Use theformula method.
Units sold
Refer to the original data.Compute the company's margin of safety in both dollar andpercentage terms. (Round your percentage answer to 2 decimalplaces. Omit the "$" and "%" signs in your response.)
Dollars
Percentage
Margin of safety
$
%
5. What is the companyâs CMratio? If monthly sales increase by $63,000 and there is no changein fixed expenses, by how much would you expect monthly netoperating income to increase? (Omit the "$" and "%" signs in yourresponse.)
CM ratio
%
Net operating income increasesby
$
Pringle Company distributes asingle product. The companyâs sales and expenses for a recent monthfollow:
Total
Per Unit
Sales
$
310,000
$
20
Variableexpenses
217,000
14
Contributionmargin
93,000
$
6
Fixed expenses
75,000
Net operatingincome
$
18,000
Required:
1.
What is the monthly break-evenpoint in units sold and in sales dollars?
2.
Without resorting tocomputations, what is the total contribution margin at thebreak-even point?
3.
How many units would have to besold each month to earn a target profit of $33,000? Use the formulamethod.
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.)
5.
What is the companyâs CM ratio? If monthly sales increase by$62,000 and there is no change in fixed expenses, by how much wouldyou expect monthly net operating income to increase?
