Question

Lindon Company is the exclusive distributor for an automotive product that sells for $44.00 per unit and has a CM ratio of 32%. The company's fixed expenses are $267,520 per year. The company plans to sell 20,000 units this year. Required: 1. What are the variable expenses per unit? (Round your answer to 2 decimal places.) Variable expenses per unit 2. Use the equation method: a. What is the break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.) Break-even point in unit sales Break-even point in dollar sales b. What amount of unit sales and dollar sales is required to earn an annual profit of $70,400? (Do not round Intermediate calculations.) Sales level in units Sales level in dollars |

Answer 1

1) Contribution margin= 32%*44= $14.08

Variable cost= Sales-Contribution margin

= $44-14.08

= $29.92 per unit

2-a) Break-even point in unit sales= Variable expense+Fixed expenses

$44*X= $29.92*X+267520

$14.08X= $267520

X= 19000 units

Break -even point in dollar sales= Break-even point in unit sales*Sales price

= 19000*$44= $836000

b) Sales level in units= Variable expense+Fixed expenses+Target profit

$44*X= $29.92*X+267520+70400

$14.08X= $337920

= 24000 units

Sales level in dollars= Sales level in units*Sales price

= 24000*$44= $1056000

c) New variable cost per unit= $29.92-3.60= $26.32

New break even point in unit sales= Variable expense+Fixed expenses

$44X= $26.32X+267520

$17.68X= 267520

X= 15131 units

Break -even point in dollar sales= Break-even point in unit sales*Sales price

= 15131*$44= $665764

where X= number of units sold

3-a) Break-even point in unit sales= Fixed cost/Contribution margin per unit

= $267520/14.08

= 19000 units

Break-even point in dollar sales= Fixed cost/Contribution margin ratio

= $267520/32%

= $836000

b) Sales level in units= (Fixed cost+Target profit)/Contribution margin per unit

= $(267520+70400)/14.08

= 24000 units

Sales level in dollars= (Fixed cost+Target profit)/Contribution margin ratio

= $(267520+70400)/32%

= $1056000

c) New variable cost per unit= $29.92-3.60= $26.32

New contribution margin per unit= Sales-New variable cost per unit

= $44-26.32= $17.68

New break even point in unit sales= Fixed cost/New contribution margin per unit

= $267520/17.68= 15131 units

Contribution margin ratio= New contribution margin per unit*100/Sales

= $17.68*100/44= 40.1818%

New break even point in dollar sales= Fixed cost/Contribution margin ratio

= $267520/40.1818%= $665774