QUESTION 2

1. SPI-K manufactures and sells a single product. The companys sales and expenses for last quarter follow:

   	Total	Per Unit
   Sales	$600,000	$40
   Less: Variable Expenses	$420,000	$28
   Contribution Margin	$180,000	$12
   Less: Fixed Expenses	$146,520
   Net Operating Income	$33,480

   Required:

   1. What is the monthly 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 $18,000? Use the formula method. Verify your answer by preparing a contribution format income statement at the target level of sales.
   4. Refer to the original data. Compute the companys margin of safety for the quarter in both dollar and percentage terms.
   5. What is the companys CM ratio? If quarterly sales increase by $80,000 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 calculate your answer.)