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 $35.00 per unit and has a CM ratio of 38%. The company's fixed expenses are $385,700 per year. The company plans to sell 30,000 units this year Required: 1. What are the variable expenses per unit? (Round your answer to 2 decimal places.) riable expenses per unit 2. Use the equation method a. What is the break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.) Break-even point in unit sales Break-even point in dollar sales b. What amount of unit sales and dollar sales is required to earn an annual profit of S66,500? (Do not round intermediate calculations.) Sales level in units Sales level in dollars

Explanation / Answer

Req 1: Selling price: $ 35 CM ratio : 38% Variable cost ratio : 100 -38% =62% Variable cost per unit: 35*62% = $21.70 per unit Req 2: Let units to be sold at break even is X Fixed cost = 385700 Sales - Variable cost = Fixed cost 35X - 21.70 X = $ 385700 X = 29000 units Break even in Unit: 29000 units Break even in $: $1,015,000 (29000 units @35) Req 2-b: Desird profit: 66500 Desired Contrbution = 66500+385700 = $ 452200 Sales - Variable cost = Desired contribution 35X - 21.70 X = $ 452200 X = 34000 units Target sales in unit 34000 Units Target sales in $ 1190000 in $ Req 2-c Revised variable cost = 21.70-4.50 = 17.20 Let units to be sold at break even is X Fixed cost = 385700 Sales - Variable cost = Fixed cost 35X - 17.200 X = $ 385700 X = 21669 units Break even in Unit: 21669 units Break even in $: $758,415 (21669 units @35) Req 3: Seling price per unit: 35 Variable cost:   21.70 Contribution: Sales-Variable ccost = 35-* 21.70 = 13.30 CM ratio = 38% Break even point = Fixed cost / CM per unit = 385700/ 13.30 = 29000 units Break even in $ : Fixed cost / CM ratio = 385700/38% = $1015000 Req 3-a: Desired contribution: $ 452,200 Target sales in units: Desired contribution/ Contribution per unit = 452,200 /13.30 = 34000 units Target sales in $ = Desired contribution/ CM ratio - 452200/38% = $ 1190,000

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