Question

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? Variable expense per unit 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 40.60 25,000 $ 1,450,000 40,000 $ 2,320,000 18,750 $ 1,087,500 $ 1,740,000

please explain how to arrive at these numbers. thanks

Answer 1

data given selling price contribution margin ratio fixed expense units plans to sell 58.00 30% 4,35,000 30000 units 1 2 3 ANSWERS variable cost per unit 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 40.60 25,000 $1,450,000 40,000 $2,320,000 18,750 $1,087,500 $1,740,000

explanation variable cost per unit = selling price - constibution margin per unit = 58.00- 1 (30%*58.00) = 58.00-17.40=40.60 break even point in units = fixed cost / 2 contibution margin unit = 435000/17.40 40.60 25000 units 1450000 break even point in dollar sales = fixed cost / contribution margin ratio=435000/30% unit sales needed to atain target profit 261000= (fixed cost +target profit)/contribution margin 3 per unit = (435000+261000)17.40 dollar sales needed to attain the target profit =(fixed cost +target profit)/CM ratio=(435000+261000)/30% 40000 units 2320000

34.80 23.20 40.00% 4 if variable cost reduced by 5.80 new variable cost per unit = 40.60-5.80 new contribution margin unit = 58.00-34.80 contibution margin ratio = 23.20/58.00*100 new break even point in unit sales = fixed cost / CM per unit = 435000/23.20 new break even point in dollar sales = fixed cost / CM ratio = 435000/40.00% dollar sales needed to attain target profit = (453000+261000)/40.00% 18750 1087500 1740000