Problem
The sales and expenses of a company for the last month are as follows:
Total. Unit
Sales $636,000 $40
Variable expenses 445,200 28
Contribution margin. $190,800 12
Fixed expenses 154,800
Net operating income $36,000
Task
Calculate:
I. What is the monthly breakeven point in unit sales and in dollars?
II. Without resorting to calculations, what is the total contribution margin at breakeven?
III. i. How many units would have to be sold each month to reach a target profit of $69,600?
ii. Verify your answer by preparing an income statement in contribution to target sales level format.
IV. Check the original data. Calculate the company's margin of safety in both dollar and percentage terms.
V. What is the company's CM index? If the company can sell more units, thereby increasing sales by $68,000 per month, and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?