The following is Arkadia Corporation\'s contribution format income statement for

ID: 2422090 • Letter: T

Question

The following is Arkadia Corporation's contribution format income statement for last month:

The company has no beginning or ending inventories and produced and sold 20,000 units during the onth.

Required:

a. What is the company's contribution margin ratio?

b. What is the company's break-even in units?

c. If sales increse by 100 units, by how much should net operating income increase?

d. How many units would the company have to sell to attain a target profit of $125,000?

e. What is the company's margin of safety in dollars?

Sales $1,200,000 Variable expenses 800,000 Contribution margin 400,000 Fixed expenses 300,000 Net operatin income $100,000

Answer: a

Contribution margin ratio=(Contribution margin/Sales)*100

=(400000/1200000)*100

=33.33%

Answer:b BEP (units)=Fixed cost/Contribution margin per unit

=$300000/$20

=15000 units

Answer:c. Net operating income should increase by $2000 (100*$20).

Answer:d Units=(Fixed expense+Target Profit)/Contribution margin per unit

=(300000+125000)/20

=21250 units

Answer:e MOS ($)=Total sales-Break even sales

=1200000-(15000*60)

=300000

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