Question

3.

Lindon Company is the exclusive distributor for an automotive product that sells for $18.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $92,340 per year. The company plans to sell 13,200 units this year.

Required:

1.		What are the variable expenses per unit? (Round your answer to 2 decimal places.)

     

2.	Use the equation method:

a.	What is the break-even point in unit sales and in dollar sales?

            

b.	What amount of unit sales and dollar sales is required to earn an annual profit of $27,000?

          

c.	Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.80 per unit. What is the company’s new break-even point in unit sales and in dollar sales?

          

3.	Repeat (2) above using the formula method.

a.	What is the break-even point in unit sales and in dollar sales?

            

b.	What amount of unit sales and dollar sales is required to earn an annual profit of $27,000?

          

c.	Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.80 per unit. What is the company’s new break-even point in unit sales and in dollar sales?

          

Answer 1

1)	Variable expense per unit
	18*70%
	12.6

2a)	(18.-12.6)=92340
	17100	units
	x *30% =	92340
	x=	307800	dollar sales
2b)	(5.4x) =	92340+27000
	x=	(92340+27000)/5.4
		22100	units
	dollar sales
	x *30%=	92340+27000
	x=	397800	answer
c)	7.2 x	=	92340
	x=	12825	units
	x *40%=	92340
	x =	230850

3a)	BEP(units) = fixed cost/contribution per unit
		92340/5.4
		17100
	BEP(dollar sales) = fixed cost/contribution margin
		92340/30%
		307800
b)	unit sales = (fixed cost+target profit)/contribution per unit
		(92340+27000)/5.4
		22100	units
	dollar sales = 22100*18
		397800
c)	new contribuiton = 5.4+1.8
			7.2
	BEP(units) = fixed cost/contribution per unit
		92340/7.2
		12825 answer
	BEP(dollar sales) = 12825*18
		230850 answer