| ringle Company distributes a single product. The company’s sales and expenses for a recent month follow: |
| Total | Per Unit | ||||
| Sales | $ | 310,000 | $ | 20 | |
| Variable expenses | 217,000 | 14 | |||
| Contribution margin | 93,000 | $ | 6 | ||
| Fixed expenses | 75,000 | ||||
| Net operating income | $ | 18,000 | |||
| 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 target profit of $33,000? Use the formula method. |
| 4. | 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.) |
| 5. | What is the company’s CM ratio? If monthly sales increase by $62,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? |
Requirement 1:
What is the monthly break-even point in units sold and in sales dollars?
BEP is as fllow
20 x = 75000+14X
20x – 14X =75000
6X =75000
X=12,500
| Sales (125000*20) | 250000 |
| Less: | |
| Varbale expenses | 175000 |
| Contribution margin | 75000 |
| Less: | |
| Fixed Cost | 75000 |
| Net Profit | 0 |
| 2 |
|
|
| $ 75000 |
3
| How many units would have to be sold each month to earn a target profit of $33,000? Use the formula method. |
Tareget profit is 33,000
One way is to solve for:
($ 75,000 + $33,000) = 108,000
108,000=6 X
108,000/6 = X
18000 units
| Sales (18000*20) | 360000 |
| Less: | |
| Varbale expenses | 252000 |
| Contribution margin | 108000 |
| Less: | |
| Fixed Cost | 75000 |
| Net Profit | 33,000 |
Requirement 4:
Refer to the original data. Compute the company’s margin of safety in both dollar and percentage terms.
| Margin of safety | |
| Sales | 310,000.00 |
| Fixed cost+ Contribution | 93,000.00 |
| MOS = 93000/310,000 | 30.00 |
| 30% |
| CM Ratio = 6/20 | 30% | |
| Current sale 310000/20 | 15500 | |
| Increase 62000/20 | 3100 | |
| Total | 18600 | |
| Particular | Amount | Units |
| Sales (18000*20) | 372000 | 20 |
| Less: | ||
| Varbale expenses | 260400 | 14 |
| Contribution margin | 111600 | 6 |
| Less: | ||
| Fixed Cost | 75000 | |
| Net Profit | 36,600 |
