Exercise 5-14 Break-Even and Target Profit Analysis [LO5-3, LO5-4, LO5-5, LO5-6]
ID: 2536795 • Letter: E
Question
Exercise 5-14 Break-Even and Target Profit Analysis [LO5-3, LO5-4, LO5-5, LO5-6]
Lindon Company is the exclusive distributor for an automotive product that sells for $18.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $92,340 per year. The company plans to sell 13,200 units this year.
Required:
What are the variable expenses per unit? (Round your answer to 2 decimal places.)
What is the break-even point in unit sales and in dollar sales?
What amount of unit sales and dollar sales is required to earn an annual profit of $27,000?
Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.80 per unit. What is the company’s new break-even point in unit sales and in dollar sales?
What is the break-even point in unit sales and in dollar sales?
What amount of unit sales and dollar sales is required to earn an annual profit of $27,000?
Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.80 per unit. What is the company’s new break-even point in unit sales and in dollar sales?
Lindon Company is the exclusive distributor for an automotive product that sells for $18.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $92,340 per year. The company plans to sell 13,200 units this year.
Explanation / Answer
1)Variable expense per unit =selling price [1-CM ratio]
18[1-.30]
$ 12.60 per unit
2)
a)Number of units *price =[Variable cost *units ]+ fixed cost
X*18 = 12.6*X + 92340
18X -12.6X = 92340
5.4X =92340
X = 92340 /5.4
= 17100 UNITS
Dollar sales = 17100* 18 =$ 307800
b)Number of units *price =[Variable cost *units ]- fixed cost + Target profit
x* 16 = 12.6*x + 92340 +27000
18x -12.6x = 119340
5.4x = 119340
x= 119340/5.4
=22100 units
Dollar sales = 22100*18 =$397800
c)new variable expense = 12.6- 1.8 = 10.80
18x = 10.8x +92340
18x -10.8x =92340
7.2x = 92340
x = 92340 /7.2 = 12825 units
dollar sales = 12825*18 =$ 230850
3a)BEP =fixed cost /contribution per unit
92340 /(18-12.6)
92340 / 5.4
17100 units
BEP ($)= fixed cost /CM ratio
92340 /.30
=$ 307800
b)
BEP(unit) = [fixed cost+target profit ]/contribution per unit
=[92340+27000]/5.4
= 22100units
BEP($)= [92340+27000]/.30
= $ 397800
c)Contribution per unit = 18-10.8=7.2
CM ratio - 7.2 /18 = .40 or 40%
BEP (unit)= 92340 /7.2
= 12825 units
BEP($) = 92340/.40
= $ 230850
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