Question 3: Pringle Company sells a single product. The company\'s sales and exp
ID: 2445414 • Letter: Q
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Question 3: Pringle Company sells a single product. The company's sales and expenses for a recent month follow: Required: 1. What is the monthly break - even point in units sold and in sales dollars? 2. Without resorting to computations, what is the total contribution margin at the break even point? 3. 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 income statement at the target level of sales. 4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. 5. What is the company's CM ratio? If monthly sales increase by $80,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?Explanation / Answer
1) Statement showing computations Particulars Amount Amount per unit No of units Sales 600,000.00 40.00 15,000.00 Variable Costs 420,000.00 28.00 15,000.00 Contribution 180,000.00 12.00 15,000.00 Fixed Expenses 150,000.00 Net income 30,000.00 CM ratio = Cont/Sales = 180,000/600,000 = 30% BEP in Units = FC/Cont pu BEP in Units = 150,000/12= 12500 Units BEPin $ = 12500*40 = 500,000 2) Cont at BEP = 500,000*30% = 150,000 3) Units to be sold = (150000+18000)/12 =14,000 Statement showing computations Particulars Amount Sales 560,000.00 Variable Costs 392,000.00 Contribution 168,000.00 Fixed Expenses 150,000.00 Net income 18,000.00 4) MOS = 600,000-500,000 = $100,000 MOS in % = 100,000/600,000 = 16.66% 5) CM Ratio = 30% as computed above If sales inc by 80,000 then income will inc by 80000*30% = 24,000
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