?? ? Socurw/ https://n thtmi Exam 2, Chapters 5, 78,96 Help Save & Exit Submit L
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Question
?? ? Socurw/ https://n thtmi Exam 2, Chapters 5, 78,96 Help Save & Exit Submit Lindon Company is the exclusive distributor for an automotive product that sells for $44.00 per unit and has a CM ratio of 30% 15 The company's fied espenses are $283,800 per yeat The company plans to sell 25:100 unis this year. 1. What are the varlable 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 attaln a target profit of $151,800 per year? 4. Assume that by using a more efficient shipper, the company ls able to reduce its variable expenses by $4.40 per unit. What is 18 points the company's new break-even point in unlt 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 Doller sales needed to attain target profitExplanation / Answer
Solution:
1) Variable Expenses per unit = Unit Selling Price x (1 – CM Ratio)
= $44 * (1 – 0.30)
= $44 x 0.7
= $30.80
2)
Break Even point in units = Total Fixed Cost / Contribution Margin per unit
Contribution margin per unit = Unit Selling Price x CM Ratio = $44*30% = $13.20
Break Even point in units = Total Fixed Cost $283,800 / Contribution Margin per unit $13.20
= 21,500 Units
Break Even Point in dollar sales = Break Even Point in units x Unit Selling Price
= 21,500 Units x $44
= $946,000
3)
Unit Sales needed to attain target profit = (Total Fixed Cost + Target Profit) / Contribution Margin Per Unit
= ($283,800 + 151,800) / 13.20
= $435,600 / 13.2
= 33,000 Units
Dollar Sales needed to attain target profit = (Total Fixed Cost + Target Profit) / Contribution Margin Ratio
= $435,600 / 30%
= $1,452,000
4)
Old Variable Expenses per unit = $30.80
New Variable Expense per unit = $30.80 – Reduction by $4.40 per unit = $26.40 per unit
New Contribution Margin per Unit = Unit Selling Price 44 – New Variable Expense per unit $26.40 = $17.60 per unit
New CM Ratio = $17.60 / 44 x 100 = 40%
New Break Even point in unit sales = Total Fixed Cost / Contribution Margin per unit
= $283,800 / 17.60
= 16,125 Units
New Break Even point in dollar sales = Total Fixed Cost / CM Ratio
= $283,800 / 40%
= $709,500
Dollar Sales needed to attain target profit = (Total Fixed Cost + Target Profit) / Contribution Margin Ratio
= (283800 + 151800) / 40%
= $1,089,000
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