6 award 250 out of 250 points menlo company

6.
Award: 2.50 out of 2.50 points
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
Total Per Unit
Sales $308,000 $ 20
Variable expenses 215,600 14
Contribution margin 92,400 $ 6
Fixed expenses 75,000
Net operating income $ 17,400
Required:
1. What is the monthly break­even point in unit sales and in dollar sales?
2. Without resorting to computations, what is the total contribution margin at the break­even point? 3­a. How many units would have to be sold each month to earn a target profit of $30,600? Use the formula
method.
3­b. Verify your answer by preparing a contribution format income statement at the target sales level.

$ $
$
$
Menlo Company
Contribution Income Statement
Total Per unit
Sales 352,000 20
Variable expenses 246,400 14
Contribution margin
105,600
6
Fixed expenses 75,000
Net operating income
30,600
4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage
terms. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).
5. What is the company’s CM ratio? If monthly sales increase by $99,000 and there is no change in fixed
expenses, by how much would you expect monthly net operating income to increase?
$
CM ratio
30
%
Net operating income increases by
29,700
Garrison 15e Recheck 2014­12­17
References
Worksheet Learning Objective:
05­03 Use the
contribution margin
ratio (CM ratio) to
compute changes in
contribution margin
and net operating
income resulting
from changes in
sales volume.
Learning Objective: 05­06 Determine the
level of sales needed to achieve a
desired target profit.

Learning
Objective: 05­
01 Explain how
changes in
activity affect
contribution
margin and net
operating
income.
Learning Objective:
05­05 Determine the
break­even point.
Learning Objective: 05­07 Compute the
margin of safety and explain its
significance.
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
Total Per Unit
Sales $308,000 $ 20
Variable expenses 215,600 14
Contribution margin 92,400 $ 6
Fixed expenses 75,000
Net operating income $ 17,400
Required: