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?

Question

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:

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?

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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.