Pringle company sells a single product. The company\'s sales and expenses for a

Question

Pringle company sells a single product. The company's sales and expenses for a recent month follows;

Required:

A: What is the monthly break even point in units sold and in sales dollars?

B: Without resorting to computations, what is the total contribution margin at the break even point?

C: How many units would have to be sold each month to earn a minimum target profit of $ 18,000? Use the contribution

margin method. Verify your answer by preparing a contribution margin income statement at the target level of sales.

D: Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms

Break down each step and show your work !!!

Total Per Unit Sales $600,000.00 $40.00 less Variable Expenses $420,000.00 $28.00 contribution margin $180,000.00 $12.00 less fixed expenses $150,000.00 net operating income $30,000.00

Explanation / Answer

A) Breakeven point in units = 150000/12 = 12500 => 12500 * 40 in sales = $500,000

B) Contribution margin = fied expense = 150,000

C) Units sold = ( 150000 + 18000 ) / 12 = 14000

D) Margin of safety is 600,000 - 500,000 = 100,000

=> 1/6 = 16.67%

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