Question

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? (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 $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? What dollar sales is required to attain a target profit of $81,600?

Answer 1

1. Variable expenses per unit = $32*(1-0.30) = $22.4 per unit

2. Break-even point in unit sales = Fixed expense / contribution margin per unit

= $177600 / (32-22.4) = 18500 units

Break-even point in dollar sale = 177600 / 0.30 = $592,000

3.

Break-even point in unit sales = (Fixed expense+target profit) / contribution margin per unit

= ($177600+81600) / (32-22.4) = 27000 units

Break-even point in dollar sale = (177600+81600) / 0.30 = $864,000

4.Break-even point in unit sales = $177600 / (32- 19.2) = 13875 units

Break-even point in dollar sale = 177600 / 0.3375 = $526222

Dollar sales is required to attain a target profit of $81,600 = (177600+81600) / 0.3375 = $768000