E3–1 Time allowed: 20 minutes Menlo Company manufactures and sells a single product. The company’s sales and expenses for the last quarter follow:

Required 1 What is the quarterly break-even point in units sold and in sales pounds?
2 Without resorting to computations, what is 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 £90,000? Use the unit contribution method. Verify your answer by preparing a contribution profit and loss account at the target level of sales.

4 Refer to the original data. Compute the company’s margin of safety in both pound and percentage terms.
5 What is the company’s CM ratio? If sales increase by £50,000 per quarter and there is no change in fixed expenses, by how much would you expect quarterly profit to increase? (Do not prepare a profit and loss account; use the CM ratio to compute your answer.)

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Sales Less variable expenses Total 450,000 180,000 Per unit 30 12 Contribution margin 270,000 18 Less fixed expenses 216,000 Profit 54,000