Lindon Company is the exclusive distributor for an automotive product that sells for $30.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $162,000 per year. The company plans to sell 20,200 units this year.
Answer:
1. | Variable expense per unit | $21.00 |
2. | Break-even point in units | 18,000 |
Break-even point in dollar sales | $540,000 | |
3. | Unit sales needed to attain target profit | 26,000 |
Dollar sales needed to attain target profit | $780,000 | |
4. | New Break-even point in unit sales | 13,500 |
New Break-even point in dollar sales | $405,800 | |
Dollar sales needed to attain target profit | $585,000 |
Explanation:
1. Variable expense per unit
Contribution margin ratio =30%
$30×30% =$9
$30-$9 =$21
2.
Break-even point in units = $162,000/9 =18,000
Break-even point in dollar sales= $162,000/30% =$540,000
3.
Units needed to attain target profit
=($72,000+$162,000)/9 =26,000 units
Dollars needed to attain target profit
= 26,000×$30= $780,000
4.
Variable expense reduced by $3.00 per unit
Contribution margin per unit =$9+$3 =$12
New Break-even point in unit sales
= $162,000/$12 =13,500 units
New Break-even point in dollar sales
= 13,500×$30 =$405,800
Dollar sales needed to attain target profit
= $12/$30 =40% contribution margin ratio
$72,000= sales×40% -$162,000
Sales = ($162,000+$72,000)/40%
Sales = $234,000/40%
Sales =$585,000
____×____
All the best
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