Exercise 4-12 Target Profit
and Break-Even Analysis; Margin of Safety; CM Ratio [LO1, LO3, LO5, LO6, LO7]
Menlo Company distributes a
single product. The company's sales and expenses for last month follow:
Total Per Unit
Sales $1,092,000
$70
Variable
expenses 764,400 49
Contribution
margin 327,600 $21
Fixed expenses 264,600
Net
operating income $63,000
Requirement1:
What is the monthly break-even point in units sold and in sales dollars? (Omit the "$" sign in your response.)
What is the monthly break-even point in units sold and in sales dollars? (Omit the "$" sign in your response.)
Requirement 2:
Without resorting to
computations, what is the total contribution margin at the break-even point? (Omit
the "$" sign in your response.)
Requirement 3:
How many units would have to
be sold each month to earn a target profit of $96,600? Use the formula method.
Units sold units
Requirement 4:
Refer to the original data.
Compute the company's margin of safety in both dollar and percentage terms.
(Round your percentage value to 2 decimal places. Omit the "$" and
"%" signs in your response.) Dollars Percentage Margin
of safety $ %
Requirement 5:
What is the
company's CM ratio? If sales increase by $91,000 and there is no change in
fixed expenses, by how much would you expect monthly net operating income to
increase?(Omit the "$" and "%" signs in your response.) CM
ratio %
Increased net operating
income $
SOLUTION
PREVIEW
1. Sales = Variable expenses + Fixed expenses + Profits
$70Q = $49Q + $264,600 + $0
$21Q = $264,600
File name: E4-12Menlo.doc File type: .doc PRICE: $6
