Lindon Company is the exclusive distributor for an automotive product that sells
ID: 2396128 • Letter: L
Question
Lindon Company is the exclusive distributor for an automotive product that sells for $48.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $324,000 per year. The company plans to sell 26,500 units this year.
Lindon Company is the exclusive distributor for an automotive product that sells for $48.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $324,000 per year. The company plans to sell 26,500 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 $180,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.80 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 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 profitExplanation / Answer
Answers
A
Unit Sales Price
$ 48.00
B
CM ratio
30%
C=A x B
Unit Contribution margin
$ 14.40
D = A - C
Variable expenses per unit [Answer 1]
$ 33.60
E
Fixed expenses
$ 324,000.00
F = E/C
Break Even point in units [Answer 2]
22500
G = E/B
Break Even point in dollar sales [Answer 2]
$ 1,080,000.00
A
Target Profit
$ 180,000.00
B
Fixed expenses
$ 324,000.00
C=A+B
Total contribution required
$ 504,000.00
D
Unit Contribution margin
$ 14.40
E=C/D
Unit Sales needed to attain target profit [Answer 3]
35000
F
CM ratio
30%
G = C/F
Dollar Sales needed to attain Target profits [Answer 3]
$ 1,680,000.00
A
Current Unit contribution margin
$ 14.40
B
Reduction in Variable expenses
$ 4.80
C=A+B
New unit contribution margin
$ 19.20
D=C/$48
New CM ratio
40%
E
Fixed expenses
$ 324,000.00
F = E/C
New Break Even point in Unit Sales [Answer 4]
16875
G = E/D
New Break Even point in Dollar sales [Answer 4]
$ 810,000.00
H
Target Profit
$ 180,000.00
I = H + E
Total contribution required
$ 504,000.00
J = I/D
Dollar Sales needed to attain target profits
$ 1,260,000.00
A
Unit Sales Price
$ 48.00
B
CM ratio
30%
C=A x B
Unit Contribution margin
$ 14.40
D = A - C
Variable expenses per unit [Answer 1]
$ 33.60
E
Fixed expenses
$ 324,000.00
F = E/C
Break Even point in units [Answer 2]
22500
G = E/B
Break Even point in dollar sales [Answer 2]
$ 1,080,000.00
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