**Answer:**

**Part 1. What is the monthly break-even point in unit sales and in dollar sales?**

Break-even point in sales =$484000

Break-even point in unit = 12084 units

**Part 2. What is the total contribution margin at the break-even point?**

Total contribution margin = $ 145,200

**Part 3 (a) How many units would have to be sold each month to attain a target profit of $63,600?**

Units to be Sold =17400 units

**Part 3 (b) Verify your answer by preparing a contribution format income statement at the target sales level.**

**Income statement at the target sales level of 17400 units**

Sales ($40×17400) 696000

Less Variable Costs ($28×17400) 487200

Contribution 208800

Less Fixed Cost 145,200

Target Profit 63,600

**Part 4 Compute the company's margin of safety in both dollar and percentage terms**

Margin of Safety (Dollars) = $ 212000

Margin of Safety (Units) = 5 400

**Part 5. What is the company’s CM ratio? If sales increase by $80,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?**

(A) Contribution Margin Ratio is $12/$40×100 = 30%.

(B) If sales increase by $80,000, then net operating income to increase by $80000

**Explanation:**

**Part 1. What is the monthly break-even point in unit sales and in dollar sales?**

Break-even point in unit sales = Fixed Costs/Contribution Margin Ratio

=Fixed expenses $145,200/Contribution Margin Ratio 0.30

=$484000

Break-even point in unit = Fixed Costs/Contribution per unit

=Fixed expenses $145,200/Contribution per unit $12

=12084

** **

**Part 2. What is the total contribution margin at the break-even point?**

Total contribution margin = $ 145,200

**Part 3 (a) How many units would have to be sold each month to attain a target profit of $63,600?**

Units to be Sold = (Target Profit + Fixed Cost)/ Contribution per unit

=( $63,600+$145,200)/$12

=17400 units

**Part 4 Compute the company's margin of safety in both dollar and percentage terms**

Margin of Safety = (Expected Sales - Break Even Sales)/Expected Sales ×100

= 696000-484000/ 696000

= 30.46% (2dp)

Margin of Safety (Dollars) = Expected Sales × Margin of Safety %

= $ 696000×30.46%

= $ 212000

Margin of Safety (Units) = Expected Sales Units × Margin of Safety %

= 17 400×30.46%

= 5 400

**Part 5. What is the company’s CM ratio? If sales increase by $80,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?**

Contribution Margin Ratio = Contribution/Sales

(A) Contribution Margin Ratio is $12/$40×100 = 30%.

(B) If sales increase by $80,000, then net operating income to increase by $80000