Lindon Company is the exclusive distributor for an automotive product that sells

Question

Lindon Company is the exclusive distributor for an automotive product that sells for $22.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $105,600 per year. The company plans to sell 17,400 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 $39,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.20 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 3. Unit sales needed to attain target profit 4.New break-even point in unit sales Break-even point in dollar sales Dollar sales needed to attain target profit New break-even point in dollar sales Dollar sales needed to attain target profit

Explanation / Answer

Part 1

Variable expenses per unit = 22 * (100%-30%) =22*70% = 15.40

Part 2

Breakeven point in unit sale = fixed expenses / contribution margin Per unit

Contribution margin Per unit = selling price per unit - variable expenses per unit = 22 - 15.40 = 6.60

Breakeven point in units = 105600/6.60 = 16000 units

Breakeven point in dollars sales = 16000*22 = 352000

Part 3

Unit sales needed to attain target profit = (fixed expenses + target profit) / contribution margin Per unit

= (105600+39600)/6.60 = 145200 / 6.60 = 22000 units

Dollar sales needed to attain target profit = 22000*22 =484000

Part 4

New Breakeven point in units sales = fixed expenses / new contribution margin Per unit

New contribution margin Per unit = 22 - 15.40 - 2.20 = 4.40

New breakpoint in units sales = 105600/4.40 = 24000

New Breakeven point in dollars sales = 24000*22 = 528000

Dollar sales needed to target profit = ((105600+39600)/4.40)*22 = 726000

1. Variable expenses per unit $ 15.40 2. Breakeven point in units 16000 uints Breakeven point in dollar sales $ 352000 3. Unit sales needed to attain target profit 22000 units Dollar sales needed to attain target profit $ 484000 4. New Breakeven point in unit sales 24000 units New Breakeven point in dollar sales $ 528000 Dollar sales needed to attain target profit $ 726000

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