Question

Exercise 6-14 Break-Even and Target Profit Analysis [LO6-3, LO6-4, LO6-5, LO6-6]

Lindon Company is the exclusive distributor for an automotive product that sells for $56.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $411,600 per year. The company plans to sell 29,300 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 $243,600 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.60 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 $243,600?

1	Variable expense per unit
2	Break-even point in units
	Break-even point in dollar sales
3	Unit sales needed to attain target profit
	Dollar sales needed to attain target profit
4	New break-even point in unit sales
	New break-even point in dollar sales
	Dollar sales needed to attain target profit

Answer 1

Variable expense ratio = 100-30 = 70%

1) Variable expense per unit = 56*70% = $39.20 per unit

2) Break even point in units = 411600/16.80 = 24500 Units

Break even point in dollar sales = 24500*56 = $1372000

3) Units sales needed to attain target profit = (411600+243600)/16.80 = 39000 Units

Dollar sales needed to attain target profit = 39000*56 = $2184000

4) New break-even point in unit sales = 411600/22.40 = 18375 Units

New break-even point in dollar sales = 18375*56 = $1029000

Dollar sales needed to attain target profit = (411600+243600)/22.40 = 29250*56 = $1638000