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 $36.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $210,600 per year. The company plans to sell 22,300 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 $102,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.60 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 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 profit

Explanation / Answer

note: jworking are simultaneously provided

new variable cost = existing variable cost - reduction =>$25.20 - $3.60

=>$21.60.

new contribution = $36.00 - $21.60 =>$14.40

new CM ratio = new contribution / sale price =>14.4 / 36 =>0.40

1. Variable expense per unit => (sale price * (1 - CM ratio)) =>($36*(1-0.30)) =>($36*0.70) $25.20 2 Break even point in units =>[fixed cost / (sale price * CM ratio)] =>[$210,600 / ($36*30%)]=>[$210,600/ $10.80]=>19,500 units 19,500 units Break even point in dollar sales = [ fixed cost / (CM ratio)] =>$210,600 / 0.30 =>$702,000 $702,000 3 Unit sales for target profit = [fixed cost + target profit] / (price * CM ratio) =>[210,600 + 102,600]/($36*30%)=>$313,200 / $10.80 =>29,000 units 29,000units Dollar sales for target profit = [fixed cost + target profit] / CM ratio => $313,200/0.30 =>$1,044,000 $1,044,000 4 New break even point in unit sales (see note) [fixed cost / new contribution] =>[$210,600 / $14.40] 14,625 units New break even point in dollar sales (see note) [ fixed cost / new CM ratio] =>[$210,600/0.40] $526,500 Dollar sales needed to attain target profit [ fixed cost + target profit / new cm ratio] =>[$313,200 / 0.40] $783,000

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