Compute the contribution margin ratio, Break even point and Margin of Safety and number of units sold to earn targeted profits.
The following is Alsatia Corporation's contribution format income statement for last month:
|
Sales
|
$1,400,000
|
|
Variable expenses
|
900,000
|
|
Contribution margin
|
500,000
|
|
Fixed expenses
|
300,000
|
|
Net operating income
|
$200,000
|
The company has no beginning or ending inventories and produced and sold 10,000 units during the month.
Required:
a. What is the company's contribution margin ratio?
b. What is the company's break-even in units?
c. If sales increase by 100 units, by how much should net operating income increase?
d. How many units would the company have to sell to attain target profits of $225,000?
e. What is the company's margin of safety in dollars?
f. What is the company's degree of operating leverage?