Question

Lindon Company is the exclusive distributor for an automotive product that sells for $50.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $345,000 per year. The company plans to sell 27,200 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 $195,000 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.00 per unit. What is the company’s new break-even point in unit sales and in dollar sales?

1. Variable expense per unit

2. Break even point in units

break even point in dollars

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

1. Variable expense per unit = 50*70% = $35 per unit

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

= 345000/(50-35)

Break even point = 23000 units

Break even point in dollar sales = 23000*50 = $1150000

3. Required sales units = (345000+195000)/15 = 36000 units

Required sales in dollars = 36000*50 = $1800000

4. New break even point in units sales = 345000/(50-30) = 17250 units

New break even point in dollar sales = 17250*50 = $862500

Dollar sales needed to attain target profit = (345000+195000)/20 = 27000*50 = $1350000