Question

Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 a year. The company plans to sell 16,000 units this year.

1. What are the variable expenses per unit?

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 $60,000 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4 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 $60,000?

Answer 1

Requirement: 1 Variable expenses per unit = Selling price - Contribution margin per unit Selling price Contribution margin per unit (40 * 30%) Variable expenses per unit 40.00 12.00 28.00 Requirement: 2 BEP Units = Fixed expenses / Contribution margin per unit Fixed expenses Contribution margin per unit BEP Units 180000 12.00 15000 BEP Dollars = Fixed expenses / Contribution margin ratio Fixed expenses Contribution margin ratio BEP Dollars 180000 30% 600000 Requirement: 3 Unit sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin per unit Fixed expenses 180000 Target profit 60000 Contibution margin per unit 12.00 Unit sales to attain the target profit 20000

Dollar sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin ratio Fixed expenses 1800001 Target profit 60000 Contibution margin ratio 30% Dollar sales to attain the target profit 800000 24.00 Requirement: 4 New variable cost = $28-4 BEP Units = Fixed expenses / Contribution margin per unit Fixed expenses Contribution margin per unit New BEP Units sales 180000 16.00 11250 BEP Dollars = Fixed expenses / Contribution margin ratio Fixed expenses Contribution margin ratio New BEP Dollar sales 180000 40% 450000 Dollar sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin ratio Fixed expenses 180000 Target profit 60000 Contibution margin ratio 40% Dollar sales to attain the target profit 600000