Exercise 5-11: B/E Analysis; Target Profit; Margin of Safety; C/M Ratio Given:
Pringle Company distributes a single product. The company's sales and expenses for a recent month were Total Per Unit Sales $600,000 $40 Variable expenses 420,000 $28 Contribution margin $180,000 $12 Fixed expenses 150,000 Net operating income $30,000 Required:
1. What is the monthly break-even point in units sold and in sales dollars? Sales = TVC + TFC + Operating Profit $40(X) = $28(X) + $150,000 +0 $12(X) = $150,000 X = $150,000/$12 X = 12,500 12,500 units $500,000 Sales dollars 2. Without resorting to computations, what is the total contribution margin at the break-even point? At the break-even point, the total contribution must be equal to total fixed costs 3. How many units would have to be sold each month to earn a target profit of $18,000? Verify your answer by preparing a contribution format income statement at the target level of sales. Sales = TVC + TFC + Operating Profit $40(X) = $28(X) + $150,000 + $18,000 $12(X) = $168,000 X = $168,000/$12 X = 14,000 14,000 units Pringle Company Contribution Margin Income Statement For the Month ended _______________ Sales 14,000 $40 $560,000 Variable Expenses 28 392,000 Contribution Margin $12 $168,000 $168,000 Less: Fixed Expenses 150,000 Net Income $18,000 4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. Margin of safety = Current