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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
8
![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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd5bd313b-c59a-44df-ad81-6a4ff2248bf8%2F7d00f571-1f28-4410-8105-61cfa8de6183%2Fsohw6wh_processed.png&w=3840&q=75)
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?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education