Question

Lindon Company is the exclusive distributor for an automotive product that sells for $52.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $366,600 per year. The company plans to sell 27,900 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 $210,600 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.20 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 $210,600?

Answer 1

1)

Variable expense = $52 - ($52 X 30%) = $36.40

2)

Contribution margin per unit = $52 X 30% = $15.60

Breakeven point in units = $366,600 / $15.60 = 23,500

Breakeven point in sales = ($366,600 / $15.60) X $52 = $1,222,000

3)

Unit sales to attain target profit = ($366,600 + $210,600) / $15.60 = 37,000 units

Sales to attain target profit = [($366,600 + $210,600) / $15.60] X $52 = $1,924,000

4)

If variable expense decreases by $5.20 then contribution margin per unit increases by $5.20.

Contribution margins = $15.60 + $5.20 = $20.80

Breakeven point in units = $366,600 / $20.80 = 17,625

Breakeven point in sales = ($366,600 / $20.80) X $52 = $916,500

Sales to attain target profit = [($366,600 + $210,600) / $20.80] X $52 = $1,443,000