Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
| Total | Per Unit | |
|---|---|---|
| Sales | $310,000 | $20 |
| Variable expenses | 217,000 | 14 |
| Contribution margin | 93,000 | $6 |
| Fixed expenses | 78,000 | |
| Net operating income | $ 15,000 |
Required:
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What is the monthly break-even point in unit sales and in dollar sales?
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Without resorting to computations, what is the total contribution margin at the break-even point?
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a. How many units would have to be sold each month to earn a target profit of $28,800? Use the formula method.
b. Verify your answer by preparing a contribution format income statement at the target sales level. -
Refer to the original data. Compute the company’s margin of safety in both dollar and percentage terms.
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What is the company’s CM ratio? If monthly sales increase by $69,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?