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Sales Variable expenses Contribution margin Fixed expenses Total $ 306,000 214, 200 91,800 78,000 Per Unit $ 20 14 $6

Sales Variable expenses Contribution margin Fixed expenses Total $ 306,000 214, 200 91,800 78,000 Per Unit $ 20 14 $6

FINANCIAL ACCOUNTING
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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Exercise 5-18 (Algo) Break-Even and Target Profit Analysis; Margin of Safety; CM Ratio [LO5-1, LO5-2, LO5-4, LO5-5, LO5-6] Menlo Company distributes a single product. The company's sales and expenses for last month follow: Sales Variable expenses Contribution margin Fixed expenses Net operating income Total $ 306,000 214, 200 91,800 78,000 $ 13,800 Per Unit $ 20 14 $6 Required: 1. What is the monthly break-even point in unit sales and in dollar sales? 2. Without resorting to computations, what is the total contribution margin at the break-even point? 3-a. How many units would have to be sold each month to attain a target profit of $27,000? 3-b. Verify your answer by preparing a contribution format income statement at the target sales level. 4. Refer to the original data. Compute the company's margin of safety in dollar and percentage terms. 5. What is the company's CM ratio? If the company can sell more units, thereby increasing sales by $99,000 per month, and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
Transcribed Image Text:Exercise 5-18 (Algo) Break-Even and Target Profit Analysis; Margin of Safety; CM Ratio [LO5-1, LO5-2, LO5-4, LO5-5, LO5-6] Menlo Company distributes a single product. The company's sales and expenses for last month follow: Sales Variable expenses Contribution margin Fixed expenses Net operating income Total $ 306,000 214, 200 91,800 78,000 $ 13,800 Per Unit $ 20 14 $6 Required: 1. What is the monthly break-even point in unit sales and in dollar sales? 2. Without resorting to computations, what is the total contribution margin at the break-even point? 3-a. How many units would have to be sold each month to attain a target profit of $27,000? 3-b. Verify your answer by preparing a contribution format income statement at the target sales level. 4. Refer to the original data. Compute the company's margin of safety in dollar and percentage terms. 5. What is the company's CM ratio? If the company can sell more units, thereby increasing sales by $99,000 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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