Question

Lindon Company is the exclusive distributor for an automotive product that sells for $36.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $210,600 per year. The company plans to sell 22,300 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 $102,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.60 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 $102,600?

Answer 1

1. Variable expense =36 - 36*30% = 25.2 per unit

2. Break even point = fixed assets / contribution margin per unit

=210600/(36-25.2) = 19500 units

Break even sales = 210600/30% = $702000

3.target sales = (210600+102600) /(36-25.2) = 29000 units

Target dollar sales = (210600+102600) / 30% = $1044000

4. Break even = 210600/(36-25.2+3.6) = 14625 units

Break even sales = 14625*36 = $526500

Target units sales = (210600+102600) /(36-25.2-3.6) = 21750 units

Target dollar sales = 21750*36 = $783000