Menlo Company distributes a single product. The company’s sales and expenses for last 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 target profit of $90,000? Use the formula method. Verify your answer by preparing a contribution format income statement at the target sales level.

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 sales increase by $50,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Total Per Unit $30 $450,000 Sales Variable expenses 12 180,000 Contribution margin $18 270,000 Fixed expenses 216,000 $ 54,000 Net operating income