Exercise 5-11 break-even analysis target profit margin of, Ask an Expert

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Exercise 5-11 Break-Even Analysis; Target Profit; Margin of Safety; CM Ratio [LO1, LO3, LO5, LO6, LO7]

Pringle Company distributes a single product. The company's sales and expenses for a recent month follow:

	Total		Per Unit
Sales	$	620,000	$	40
Variable expenses		434,000		28

Contribution margin		186,000	$	12
Fixed expenses		145,200

Net operating income	$	40,800

Required:
1.	What is the monthly break-even point in units sold and in sales dollars?


Break-even point in unit sales	units
Break-even point in sales dollars	$

2.	Without resorting to computations, what is the total contribution margin at the break-even point?

Total contribution margin

3.	How many units would have to be sold each month to earn a target profit of $73,200? Use the formula method.

Units sold

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.)

	Dollars	Percentage
Margin of safety	$	%

5.	What is the company's CM ratio? If monthly sales increase by $65,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?


CM ratio	%
Net operating income increases by	$

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9946299

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