ratio of 30 %. The Lindon Company is the exclusive distributor for an automotive
ID: 2397465 • Letter: R
Question
ratio of 30 %. The Lindon Company is the exclusive distributor for an automotive product that sells for 3000 per unit and has a company's fixed expenses are $162,000 per year. The company plans to sell 20,200 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 $72,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.00 per unit. What is the company's new break even point in unit sales and in dollar sales? 21,00 18,000 540,000 26,000 $780,000 13,500 405,000 1 Variable expense per unit Break-even point in units Break-even point in dollar sales Dollar sales needed to attain target proit 3 Unit sales needed to attain target protit 4. New break-even point in unit sales New break -even point in dolar sales Doliar sales needed to attain target proftExplanation / Answer
Solution 1:
Selling price per unit = $30
Contribution margin ratio = 30%
Variable cost per unit = Selling price per unit - contribution margin per unit = $30 - $30*30% = $21 per unit
solution 2:
Fixed expense = $162,000
contribution margin per unit = $30 * 30% = $9
Breakeven sales units = Fixed expenses / contribution margin per unit = $162,000 / $9 = 18000 units
Breakeven sales in dollar = Fixed expenses / CM ratio = $162,000 / 30% = $540,000
Solution 3:
Target profit = $72,000
Target contribution margin = $72,000 + $162,000 = $234,000
Unit sales needed to attain target profit = Target contribution margin / contribution margin per unit = $234,000 / $9 = 26000 units
Dollar sales need to attain target profit = 26000 * $30 = $780,000
Solution 4:
new contribution margin per unit after reduction in variable cost = $9 + $3 = $12 per unit
New contribution margin ratio = $12/$30 = 40%
New breakeven point in units = $162,000 / 12 = 13500 units
New breakeven point in sales dollar = $162,000 / 40% = $405,000
Dollar sales needed to attain target profit = $234,000 / 40% = $585,000
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