Question 5 (11 marks)

Micol & Co. Ltd sells a single product, baby hamper, with a selling price of $150 and variable costs per baby hamper of $100. The companys monthly fixed expenses are $200,000.

Required:

a) What is the companys break-even point in units? (2 marks)

b) What is the companys margin of safety in dollars, assume sales is expected to be $800,000? (2 marks)

c) How many baby hampers will Micol & Co. Ltd need to sell (in sales dollars) in order to realize a target profit of $500,000? (2 marks)

d) Construct a contribution margin income statement for the first month (in July) that reflects $2,400,000 in sales revenue for Micol & Co. Ltd. (3 marks)

e) Provide two suggestions to Micol & Co. Ltd on how it can increase profit in subsequent months? (2 marks)