Wesley Company manufactures and sells a single product. The company's sales and expenses for last quarter follow:
|
Total |
Per Unit |
| Sales |
$ |
1,000,000 |
|
$ |
50 |
|
| Less: Variable expenses |
|
600,000 |
|
|
30 |
|
|
|
|
|
|
|
|
| Contribution margin |
|
400,000 |
|
$ |
20 |
|
|
|
|
|
|
|
|
| Less: Fixed expenses |
|
260,000 |
|
|
|
|
|
|
|
|
|
|
|
| Net operating income |
$ |
140,000 |
|
|
|
|
Required:
1. What is the quarterly break-even point in units sold and in sales dollars?
2. Without resorting to computations, calculate the total contribution margin at the break-even point.
3. How many units would have to be sold each quarter to earn a target profit of $80,000? Use the formula method.
4. Refer to the original data. Compute the company's margin of safety for the quarter in both dollar and percentage terms. (Round "Percentage" answer to 1 decimal place, (i.e., 0.123 should be considered as 12.3%).)
5. What is the company's CM ratio? If quarterly sales increase by $40,000 and there is no change in fixed expenses, by how much would you expect quarterly net operating income to increase? (Do not prepare an income statement; use the CM ratio to compute your answer.)