Question

Lindon Company is the exclusive distributor for an automotive product that sells for $32.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $177,600 per year. The company plans to sell 20,900 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 $81,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.20 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 $81,600?

Answer 1

Solution 1:

Selling price = $32

Contribution margin per unit = $32* 30% = $9.60 per unit

Variable expense per unit = $32 - $9.60 = $22.40

Solution 2:

Break even point in units = Fixed cost / Contribution margin per unit = $177600/ $9.60 = 18,500 units

Break even point in dollar sales = 18500 * $32 = $592,000

Solution 3:

Unit sales required to attain a target profit = (Fixed cost + target profit) / Contribution margin per unit = ($177600+ $81600) / $9.60 = 27,000 units

Dollar sales is required to attain a target profit = 27000* $32 = $864,000

Solution 4:

New Contribution margin per unit = $9.60 + $3.20 = $12.80

New Break even point in units = Fixed cost / New Contribution margin per unit = $177600/ $12.80 = 13,875 units

New Break even point in dollar sales = 13875 * $32 = $444,000

New Unit sales required to attain a target profit = (Fixed cost + target profit) / Contribution margin per unit = ($177600+ $81600) / $12.80 = 20,250 units

New Dollar sales is required to attain a target profit​​​​​​​ = 20,250* $32 = $648,000