ERCISE 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio 6, LO7] enlo Company distributes a single product. The company's sales and expens low: Total Per Unit Sales..... $450,000 $30 .... Variable expenses 180,000 12 .... 270.000
ERCISE 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio 6, LO7] enlo Company distributes a single product. The company's sales and expens low: Total Per Unit Sales..... $450,000 $30 .... Variable expenses 180,000 12 .... 270.000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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![EXERCISE 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio [LO1, LO3, LO5,
L06, LO7]
Menlo Company distributes a single product. The company's sales and expenses for last month
follow:
Total
Per Unit
Sales...
Variable expenses
$450,000
$30
180,000
12
Contribution margin
Fixed expenses.
270,000
216,000
$18
Net operating income
$ 54,000
Required:
1. What is the monthly break-even point in units sold and in sales dollars?
Without resorting to computations, what is the total contribution margin at the break-even point?
3. How many units would have to be sold each month to earn a target profit of $90,000? Use the
formula method. Verify your answer by preparing a contribution format income statement at
the target sales level.
2.
4. Refer to the original data. Compute the company's margin of safety in both dollar and percent-
age terms.
5. What is the company's CM ratio? If sales increase by $50,000 per month and there is no
change in fixed expenses, by how much would you expect monthly net operating income to
increase?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F172d3d89-9978-404f-98ce-b69f4d9332af%2Ff3f5fe6a-3b73-4ce8-ab2f-10199b0072a3%2F3kmz04e_processed.jpeg&w=3840&q=75)
Transcribed Image Text:EXERCISE 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio [LO1, LO3, LO5,
L06, LO7]
Menlo Company distributes a single product. The company's sales and expenses for last month
follow:
Total
Per Unit
Sales...
Variable expenses
$450,000
$30
180,000
12
Contribution margin
Fixed expenses.
270,000
216,000
$18
Net operating income
$ 54,000
Required:
1. What is the monthly break-even point in units sold and in sales dollars?
Without resorting to computations, what is the total contribution margin at the break-even point?
3. How many units would have to be sold each month to earn a target profit of $90,000? Use the
formula method. Verify your answer by preparing a contribution format income statement at
the target sales level.
2.
4. Refer to the original data. Compute the company's margin of safety in both dollar and percent-
age terms.
5. What is the company's CM ratio? If sales increase by $50,000 per month and there is no
change in fixed expenses, by how much would you expect monthly net operating income to
increase?
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