Question attached. Thanks in advance for the help. Pringle Company distributes a

Question

Question attached. Thanks in advance for the help.

Pringle Company distributes a single product. The company's sales and expenses for a recent month follow: What is the monthly break-even point in units sold and in sales dollars? (Omit the "$" sign in your response.) Break-even point in unit sales units Break-even point in sales dollars S Without resorting to computations, what is the total contribution margin at the break-even point? (Omit the "$" sign in your response.) Total contribution margin $ How many units would have to be sold each month to earn a target profit of $74,400? Use the formula method. Units sold Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. (Round your percentage answer to 2 decimal places. Omit the "$" and "%" signs in your response.) Margin of safety $ % What is the company's CM ratio? If monthly sales increase by $89,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? (Omit the "$" and "%" signs in your response.) CM ratio % Net operating income increases by$

Explanation / Answer

1. Breakeven point in unit sales = Fixed expense/(selling price-variable cost)= 150000/(40-28) = 12500 units

Breakeven point in sales dollars = selling price * Fixed expense/(selling price-variable cost) = 12500*40 =$500,000

2. Total contribution margin = Unit sales* contribution margin = 12*12500 =$150,000

3. Units sold*contribution margin -fixed expense = net profit

Units*12 - 150,000 = 74400

Units sold = 18,700

4. [Margin of Safety = Total budgeted or actual sales ? Break even sales]

Margin of safety = sales - breakeven sales = 624000-500,000) =$124,000

[Margin of Safety Percentage = Margin of safety in dollars / Total budgeted or actual sales]

= 124,000/624000 =19.87%

Margin of Safety   $124,000 19.87%

5. CM ratio = contribution margin/sales price = 12/40 =30%

CM ratio= 30%

New monthly sales = 624000 +89000 =$713000

Sales*CM ratio - Fixed expense = profit

713000*30% - 150000 = $63900

Net income increase by = $63900-$37200 =$26700

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