Pringle Company distributes a single product. The company’s sales and expenses for a recent month follow:

Total Per Unit

Sales$620,000 $40

Variable expenses 434,000 28

________________________________________________________________________________________________________________________________________________________________________________________________________ Contribution margin 186,000 $12

Fixed expenses 150,000 ________________________________________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________ Net operating income$ 36,000

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ________________________________________

Required:

1.What is the monthly break-even point in units sold and in sales dollars? (Omit the "$" sign in your response.)

Break-even point in unit sales units

Break-even point in sales dollars$

________________________________________

2.Without resorting to computations, what is the total contribution margin at the break-even point? (Omit the "$" sign in your response.)

Total contribution margin$

3.How many units would have to be sold each month to earn a target profit of $54,000? Use the formula method.

Units sold

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. Omit the "$" and "%" signs in your response.)

Dollars Percentage

Margin of safety$

%

________________________________________

5.What is the company’s CM ratio? If monthly sales increase by $98,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? (Omit the "$" and "%" signs in your response.)

CM ratio %

Net operating income increases by$

________________________________________

Explanation:

1.

Profit=(Unit CM × Q) − Fixed expenses

$0=(($40 − $28) × Q) − $150,000

$0=($12 × Q) − $150,000

$12Q=$150,000

Q=$150,000 ÷ $12 per unit

Q=12,500 units, or at $40 per unit, $500,000

2.

The contribution margin at the break-even point is $150,000 because at that point it must equal the fixed expenses.

3.

Unit sales to attain

target profit=Target profit + Fixed expenses

Unit contribution margin

=$54,000 + $150,000 = 17,000 units

$12 per unit

4.

Margin of safety in dollar terms:

Margin of safety

in dollars=Total sales - Break even sales

=$620,000 − $500,000 = $120,000

Margin of safety in percentage terms:

Margin of safety

percentage=Margin of safety in dollars

Total sales

=$120,000 = 19.35% (rounded)

$620,000

5.

The CM ratio is 30%.

Expected total contribution margin: $718,000 × 30%$215,400 Present total contribution margin: $620,000 × 30% 186,000 ________________________________________________________________________________ Increased contribution margin$29,400

________________________________________________________________________________________________________________________________________________________________ ________________________________________

Reveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $120 per unit. Variable expenses are $84 per lantern, and fixed expenses associated with the lantern total $172,800 per month.

Required:

1.Compute the company’s break-even point in number of...