Question

mework Required 0 Saved Exercise 5-14 Break-Even and Target Profit Analysis (LO5-3, LO5-4, LO5-5, LO5-6) Lindon Company is the exclusive distributor for an automotive product that sells for $58.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $435,000 per year. The company plans to sell 30,000 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 $261,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.80 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 $261,000? . 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.Contribution Margin Ratio = Contribution Margin per unit / Sales Price per unit = 30%

Contribution Margin per unit = $17.4

Contribution per unit = Sales per unit - Variable expense per unit

Variable expense per unit = $58 - $17.4 = $40.60

2. Breakeven point in units = Fixed expense / Contribution per unit = $435,000 / $17.4 = 25,000 units

Breakeven sales = Breakeven units x Selling price = 25,000 x 58 = $1,450,000

3. Profit = Contribution - Fixed Expense

Target Profit = $261,000

$261,000 = Target contribution - Fixed expense

Target contribution = $261,000 + $435,000 = $696,000

Contribution per unit = $17.4

Target unit Sales quantity = Target contribution / Contribution per unit = $696,000 / 17.4 = 40,000

Target sales dollar = 40,000 x 58 =$2,320,000

4. New variable cost = $40.60 - %5.80 = $34.80

New contribution per unit = $58 - $34.80 = $23.20

New breakeven sales units = Fixed expense / Contribution per unit = $435,000 / $23.2 = 18,750 units

Breakeven sales = Breakeven units x Selling price = 18,750 x 58 = $1,087,500

Profit = Contribution - Fixed Expense

Target Profit = $261,000

$261,000 = Target contribution - Fixed expense

Target contribution = $261,000 + $435,000 = $696,000

Contribution per unit = $23.20

Target unit Sales quantity = Target contribution / Contribution per unit = $696,000 / 23.2 = 30,000

Target sales dollar = 30,000 x 58 =$1,740,000