Question

Lindon Company is the exclusive distributor for an automotive product that sells for $36.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $210,600 per year. The company plans to sell 22,300 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 $102,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.60 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 $102,600? 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

1.

Variable expense per unit = $36 * (1 - 0.30)

= $25.20

2.

Break even point in units = Fixed expenses / Contribution margin per unit

Contribution margin per unit = $36 * 0.30

= $10.80

Break even point in units = $210,600 / $10.80

= 19,500 units

Break even point in dollar sales = Break even point in units * selling price

= 19,500 * $36

= $702,000

3.

Units sales = (Target profit + Fixed expenses) / contribution margin per unit

= ($102,600 + $210,600) / $10.80

= 29,000 units

Dollar sales = 29,000 units * selling price

= 29,000 * $36

= $1,044,000

4.

If variable expenses are reduced by $3.60, then contribution margin per unit is increased by $3.60.

New contribution margin per unit = $3.60 + 10.80

= $14.40

Break even point in units = Fixed expenses / Contribution margin per unit

= $210,600 / $14.40

= 14,625 units

Break even point in dollar sales = 14,625 * $36

= $526,500

Units sales = ($102,600 + $210,600) / $14.40

= 21,750 units

Dollar sales = 21,750 units * $36

= $783,000