Refer to the original data. Compute the company\'s margin of safety in both doll
ID: 2411150 • Letter: R
Question
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).
What is the company’s CM ratio? If monthly sales increase by $100,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
Explanation / Answer
Answers
A
Total Fixed expenses
$ 1,50,000.00
B
Unit Contribution margin
$ 12.00
C=A/B
Break Even point in Units
12500
D = C x $40
Break Even in Dollar Sales
$ 5,00,000.00
Total Contribution margin at Break Even point = Total Fixed expenses = $ 150,000
A
Target profits
$ 69,600.00
B
Total Fixed expenses
$ 1,50,000.00
C=A+B
Total Contribution margin required to be earned
$ 2,19,600.00
D
Unit Contribution margin
$ 12.00
E=C/D
No. of unit s to be sold for earning desired profits
18300
Unit
per unit
Amount
Sales
18300
$ 40.00
$ 7,32,000.00
Variable expenses
18300
$ 28.00
$ 5,12,400.00
Contribution margin
18300
$ 12.00
$ 2,19,600.00
Fixed expenses
$ 1,50,000.00
Net Operating Income (or Desired Profit)
$ 69,600.00
A
Break Even in Dollar Sales [calculated in Req 1]
$ 5,00,000.00
B
Total Sales
$ 6,32,000.00
C= B - A
Margin of Safety Sales
$ 1,32,000.00
D = (C/B)x100
Margin of Safety %
20.89%
A
Unit Contribution margin
$ 12.00
B
Unit Sales price
$ 40.00
C=A/B
CM Ratio
30%
D
Sales Increase by
$ 1,00,000.00
E=D x C
Net Operating income will increase by
$ 30,000.00
A
Total Fixed expenses
$ 1,50,000.00
B
Unit Contribution margin
$ 12.00
C=A/B
Break Even point in Units
12500
D = C x $40
Break Even in Dollar Sales
$ 5,00,000.00
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