Company ABC distributes a single product. The company’s sales and expenses for last month follow: TotalPer UnitSales$90,000$30Variable expenses$36,000$12Contribution margin$54,000$18Fixed expenses$16,000 Net operating income$38,000 What is the monthly break-even point in unit sales and in dollar sales? (2 marks)Without resorting to computations, what is the total contribution margin at the break-even point? (2 marks)How many units would have to be sold each month to earn a target profit of $11,000? Use the formula method. Verify your answer by preparing a contribution format income statement at the target sales level. (2 marks)Refer to the original data. Compute the company’s margin of safety in both dollar and percentage terms. (2 marks)What is the company’s CM ratio? If sales increase by $10,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? (2 marks)

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Company ABC distributes a single product. The company’s sales and expenses for last month follow:

	Total	Per Unit
Sales	$90,000	$30
Variable expenses	$36,000	$12
Contribution margin	$54,000	$18
Fixed expenses	$16,000
Net operating income	$38,000

1. What is the monthly break-even point in unit sales and in dollar sales? (2 marks)
2. Without resorting to computations, what is the total contribution margin at the break-even point? (2 marks)
3. How many units would have to be sold each month to earn a target profit of $11,000? Use the formula method. Verify your answer by preparing a contribution format income statement at the target sales level. (2 marks)
4. Refer to the original data. Compute the company’s margin of safety in both dollar and percentage terms. (2 marks)
5. What is the company’s CM ratio? If sales increase by $10,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? (2 marks)

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