Question

# Lindon Company is the exclusive distributor for an automotive product that sells for \$32.00 per unit...

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