Lindon Company is the exclusive distributor for an automotive product that sells for $32.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $177,600 per year. The company plans to sell 20,900 units this year.
Required:
1. What are the variable expenses per unit?
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 $81,600 per year?
4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.20 per unit. What is the company’s new break-even point in unit sales and in dollar sales?
| 1 | |||||||||
| Variable expenses per unit = 32*(1-0.3)= $22.4 | |||||||||
| 2 | |||||||||
| Break-even point in unit sales = Fixed expenses/Unit contribution margin = 177600/(32-22.4)= 18500 | |||||||||
| Break-even point in dollar sales = 18500*32= $592000 | |||||||||
| 3 | |||||||||
| Unit sales = (177600+81600)/(32-22.4)= 27000 | |||||||||
| Dollar sales = 27000*32= $864000 | |||||||||
| 4 | |||||||||
| Revised variable cost = 22.4-3.2= $19.2 | |||||||||
| Break-even point in unit sales = Fixed expenses/Unit contribution margin = 177600/(32-19.2)= 13875 | |||||||||
| Break-even point in dollar sales = 13875*32= $444000 | |||||||||
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