Question

Lindon Company is the exclusive distributor for an automotive product that sells for $56.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $411,600 per year. The company plans to sell 29,300 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 $243,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.60 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 $243,600?

Answer 1

1)compute VARIABLE expenses per unit

   Contribution margin ratio= contribution amount/sales

30%= contribution amount/29300×$56

30%= contribution amount/1640800

Contribution amount= 1640800×30%=$492240

VARIABLE expenses = sales - contribution amount

= $1640800 - $492240

= $1148560

variable expenses per unit= variable expenses/unit sold

   = $1148560/29300

   = 39.2

2.compute breakeven point in unit sales and in dollar sales

   Contribution per unit= selling price per unit - variable expenses per unit

= $56 - $39.2

= $16.8

Break even point in unit sales= fixed expenses/ contribution margin per unit

. = $411600/$16.8

   = 24500 units

Break even point in dollars sales = break even unit sales× selling price per unit

   = 24500×$56

   = $1372000

3)compute unit sales and dollars sales when Targeted profit is $243600

   Sales in dollars= Fixed expenses + Target profit/CM ratio

   = $411600+$243600 /30%

   = $655200/30%

   = $2184000

   Sales in unit = sales in dollars/ selling price per unit

   = $2184000/$56

   = 39000 unit's

4) compute New break even point when variable expenses reduce bye $5.60 per unit   

if variable expenses reduce by $5.60 per unit then new variable expenses per unit will be 39.2 - 5.60= 33.6

New contribution per unit = sales per unit - new variable expenses

= $56 - $33.6 = $22.4

new breakeven point in unit sales = fixed expenses/ New contribution per unit

   = $411600/$22.4

   = 18375 units

New breakeven point in dollar sales = break even units × selling price per unit

   = 18375 × $56= $1029000

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