Question

Lindon Company is the exclusive distributor for an automotive product that sells for $34.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $193,800 per year. The company plans to sell 21,600 units this year. Required: 1. What are the variable expenses per unit? (Round your "per unit" answer to 2 decimal places.) 2. What is the break-even point in unit sales and in dollar sales? 3. What amount of unit sales and dollar sales is required to attain a target profit of $91,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.40 per unit. What is the company's new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $91,800? | 1. Variable expense per unit 2. Break-even point in units Break-even point in dollar sales 3. Unit sales needed to attain target profit Dollar sales needed to attain target profit New break-even point in unit sales New break-even point in dollar sales Dollar sales needed to attain target profit

Answer 1

1.

Variable expenses per unit = Sale price per unit - Contribution margin per unit

Variable expenses per unit = 34 - 34*0.30

Variable expenses per unit = $23.80

2.

Break-even point (units) = Fixed expenses / Contribution per unit

Break-even point (units) = 193800 / 34*0.30

Break-even point (units) = 19000 units

Break-even point (dollars) = Fixed expenses / Contribution margin ratio

Break-even point (dollars) = 193800 / 0.30

Break-even point (dollars) = $ 646000

3.

Sales for desired profits (units) = (Fixed cost + desired profit)/Contribution per unit

Sales for desired profits (units) = (193800+ 91800)/10.20

Sales for desired profits (units) = 28000 units

Sales for desired profits (dollars) = (Fixed cost + desired profit)/Contribution margin ratio

Sales for desired profits (dollars) = (193800 + 91800) / 0.30

Sales for desired profits (dollars) = $952000

4.

New variable expense per unit = $23.80 - $3.40

New variable expense per unit = $20.40

Break-even point (units) = Fixed expenses / Contribution per unit

Break-even point (units) = 193800 / (34 - 20.40)

Break-even point (units) = 14250 units

Break-even point (dollars) = Fixed expenses / Contribution margin ratio

Break-even point (dollars) = 193800 / (34 - 20.40)/34*100

Break-even point (dollars) = 193800 / 0.40

Break-even point (dollars) = $ 484500

Sales for desired profits (dollars) = (Fixed cost + desired profit)/Contribution margin ratio

Sales for desired profits (dollars) = (193800 + 91800) / 0.40

Sales for desired profits (dollars) = $714000