Question

Check my work Lindon Company is the exclusive distributor for an automotive product that sells for $38.00 per unit and has a CM ratio of 30% The company's fixed expenses are $228,000 per year. The company plans to sell 23.000 units this year. points 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 $114,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.80 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 $114,000? 1. Variable expense per unit 2. 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

Contribution margin per unit = $38*30% Contribution margin per unit = $11.4 Contribution margin per unit = Sales - Variable expense Variable expense per unit = Sales - Contribution margin per unit Variable expense per unit = $38 - $11.4 Variable expense per unit = $26.6 Break-even point in units = Fixed expense/Contribution margin per unit Break-even point in units = $228,000/$11.4 Break-even point in units = 20,000 units Break-even point in dollar sales = Fixed expense/Contribution margin ratio Break-even point in dollar sales = $228,000/30% Break-even point in dollar sales = $760,000 Units sales needed to attain target profit = (Fixed expenses + Target profit)/Contribution margin per unit Units sales needed to attain target profit = ($228,000 + $114,000)/$11.4 Units sales needed to attain target profit = $342,000/$11.4 Units sales needed to attain target profit = 30,000 units Dollar sales needed to attain target profit = (Fixed expenses + Target profit)/Contribution margin ratio Dollar sales needed to attain target profit = ($228,000 + $114,000)/30% Dollar sales needed to attain target profit = $342,000/30% Dollar sales needed to attain target profit = $1,140,000

New variable expense = $26.6 - $3.80 New variable expense = $22.8 New Contribution margin per unit = $38 - $22.8 New Contribution margin per unit = $15.2 New Contribution margin ratio = $15.2/38 New Contribution margin ratio = 40% New Break-even point in unit sales = Fixed expense/New Contribution margin per unit New Break-even point in unit sales = $228,000/$15.2 New Break-even point in unit sales = 15,000 units New Break-even point in dollar sales = Fixed expense/New Contribution margin ratio New Break-even point in dollar sales = $228,000/40% New Break-even point in dollar sales = $570,000 Dollar sales needed to attain target profit = (Fixed expenses + Target profit)/New Contribution margin ratio Dollar sales needed to attain target profit = (228,000 + $114,000)/40% Dollar sales needed to attain target profit = $342,000/40% Dollar sales needed to attain target profit = $855,000