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 $34.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $193,800 per year. The company plans to sell 21,600 units this year.

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 $91,800 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.40 per unit. What is the company’s new break-even point in unit sales and in dollar sales?

Explanation / Answer

1.

woking note 1:

Cm ratio = 30%

contribution margin ratio = Contribution margin / Sales * 100

30%= Contribution margin / 734400

(30 * 734400)/100 = contribution margin

Therefore, contribution margin = $220320

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

BEP= $193800 / $10.2 = 19000 units

per unit rate - 21600 units

BEP in dollar sales = sales per unit * break even point in units

= $34 * 19000

= $646000

3.Unit sales for target profit = ( total fixed expenses + target profit) / contribution margin per unit

= ( 193800 + 91800) / 10.2

= 28000 units

dollar sales for target profit = ( total fixed expenses + target profit) / contribution margin ratio

= ( 193800 + 91800) / 30%

= $952000 per year

4.

per unit rate - 21600 units

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

= $ 193800 / 13.60

= 14250 units

BEP in dollar sales = sales per unit * break even point in units

= $34 * 14250units

= $484500

Particulars $ Sales (21600 units* $34) 734400 less: Variable expenses (sales+contribution margin) 514080 Contribution margin (wn 1) 220320 less: Fixed expenses 193800 Profit 26520

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