Question

Exercise 5-14 Break-Even and Target Profit Analysis (LO5-3, LO5-4, LO5-5, LO5-6] Lindon Company is the exclusive distributor for an automotive product that sells for $24.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $118,800 per year. The company plans to sell 18,100 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 $46,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.40 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 $46,800? 1. Variable expense per unit 2. Break-even point in units Break-even point in dollar sales 3. Unit sales needed to attain target profit Dollar sales needed to attain target profit 4. New break-even point in unit sales New break-even point in dollar sales Dollar sales needed to attain target profit

Answer 1

Requirement: 1 Variable expenses per unit = Selling price - Contribution margin per unit Selling price Contribution margin per unit (24 * 30%) Variable expenses per unit 24.00 7.20 16.80 Requirement: 2 BEP Units = Fixed expenses / Contribution margin per unit Fixed expenses Contribution margin per unit BEP Units 118800 7.20 16500 BEP Dollars = Fixed expenses / Contribution margin ratio Fixed expenses Contribution margin ratio BEP Dollars 118800 30% 396000 Requirement: 3 Unit sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin per unit Fixed expenses 118800 Target profit 46800 Contibution margin per unit 7.20 Unit sales to attain the target profit 23000

Dollar sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin ratio Fixed expenses 118800 Target profit 46800 Contibution margin ratio 30% Dollar sales to attain the target profit 552000 14.40 Requirement: 4 New variable cost = $16.80 - 2.40 BEP Units = Fixed expenses / Contribution margin per unit Fixed expenses Contribution margin per unit New BEP Units sales 118800 9.60 12375 BEP Dollars = Fixed expenses / Contribution margin ratio Fixed expenses Contribution margin ratio New BEP Dollar sales 118800 40% 297000 Dollar sales to attain the target profit = (Fixed expenses + Target profit) / Contribution margin ratio Fixed expenses 118800 Target profit 46800 Contibution margin ratio 40% Dollar sales to attain the target profit 414000