Problem

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Total Per Unit Sales $ 628,000 $ 40 Variable expenses 439,600 28 Contribution margin 188,400 $ 12 Fixed expenses 144,000 Net operating income $ 44,400.

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 earn a target profit of $69,600? Use the formula method.

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 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 $52,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?