Question

Lindon Company is the exclusive distributor for an automotive product that sells for $20.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $93,000 per year. The company plans to sell 16,700 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 $33,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.00 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 $33,000? 1. Variable expense per unit Break-even point in units Break-even point in dollar sales 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

Requirement: 1 Variable expenses per unit = Selling price - Contribution margin per unit Selling price Contribution margin per unit (20*30%) Variable expenses per unit 20.00 6.00 14.00 Requirement: 2 BEP Units = Fixed expenses / Contribution margin per unit Fixed expenses Contribution margin per unit BEP Units 93000 6.00 15500 BEP Dollars = Fixed expenses/Contribution margin ratio Fixed expenses Contribution margin ratio BEP Dollars 93000 0.3 310000 Requirement: 3 Unit sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin per unit Fixed expenses 93000 Target profit 33000 Contibution margin per unit 6.00 Unit sales to attain the target profit 21000

Dollar sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin ratio Fixed expenses 93000 Target profit 33000 Contibution margin ratio 0.31 Dollar sales to attain the target profit 420000 12.00 Requirement: 4 New variable cost = $14-2 BEP Units = Fixed expenses / Contribution margin per unit Fixed expenses Contribution margin per unit New BEP Units sales 93000 8.00 116251 BEP Dollars = Fixed expenses / Contribution margin ratio Fixed expenses Contribution margin ratio New BEP Dollar sales 93000 0.40 232500 Dollar sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin ratio Fixed expenses 93000 Target profit 33000 Contibution margin ratio 0.401 Dollar sales to attain the target profit 315000