Lindon Company is the exclusive distributor for an automotive product that sells
ID: 2609362 • Letter: L
Question
Lindon Company is the exclusive distributor for an automotive product that sells for $22.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $105,600 per year. The company plans to sell 17,400 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 $39,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.20 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 profitExplanation / Answer
Answer:
1.
What are the variable expenses per unit
Variable Expense = $22*(100%-30%)
Variable Expense = $15.4
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2.
Use the equation method:
a.
What is the break-even point in unit sales and in dollar sales?
Selling Price
$22.00
100%
Variable Expense
$15.40
70%
Contribution Margin
$6.60
30%
Profit = Unit CM*Q-Fixed Expense
$0 = $6.6*Q - $105,600
6.6Q = $105,600
Q = 105,600/6.6
Q = 16,000 Units
Break-even point in unit sales: 16,000 Units
Break-even point in dollar sales: 16,00 Units*$28.50
Break-even point in dollar sales: $352,000
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b.
What amount of unit sales and dollar sales is required to earn an annual profit of $39600?
Profit = Unit CM*Q-Fixed Expense
$39,600 = $6.6*Q - $105,600
$6.6Q = $39600 + $105600
$6.6Q = $145200
Q = $145200/6.6
Q = 22,000 Units
Sales level in units: 22,000 Units
Sales level in dollars: 22,000 Units*$22
Sales level in dollars: $484,000
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c.
Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.2 per unit. What is the company’s new break-even point in unit sales and in dollar sales?
Selling Price
$22.00
100%
Variable Expense ($15.4-$2.2)
$13.20
60%
Contribution Margin
$8.80
40%
Profit = Unit CM*Q-Fixed Expense
$0 = 8.8*Q - $105,600
8.8Q = $105600
Q = $105600/8.8
Q = 12,000 Units
New break-even point in unit sales: 12,000 Units
New break-even point in dollar sales: 12000*$22
New break-even point in dollar sales: $264,000
Sales required for targeted profit of $39600
Profit = Unit CM*Q-Fixed Expense
$39,600 = $8.8*Q - $105,600
$8.8Q = $39600 + $105600
$8.8Q = $145200
Q = $145200/8.8
Q = 16,500 Units
Sales level in units: 16,500 Units
Sales level in dollars: 16,500 Units*$22
Sales level in dollars: $363,000
1.
What are the variable expenses per unit
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