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 $30.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $162,000 per year. The company plans to sell 20,200 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 $72,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.00 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 proft 4.New break-even point in unit sales New break-even point in dollar sales Doller sales needed to attain target profit

Explanation / Answer

SALES PRICE = 30 PER UNIT, CM RATIO = 30%, TOTAL UNIT WILL BE SOLD= 20200

TOTAL SALES = $ 30 X 20200 = $ 606000

CM RATIO =[ (SALES - VARIABLE EXPENSE) / SALES] X 100

30 = [ (606000 - VARIABLE EXPENSE) / 606000 ] X 100

30 X 6060 = 606000 - VARIABLE EXPENSE => VARIABLE EXPENSE = 606000 - 1818000

(1) VARIABLE EXPENSE =$ 424200 , PER UNIT VARIABLE EXPENSE = $ (424200 / 20200 )

= $ 21

(2) BREAKE EVEN POINT IN UNIT SALES = FIXED EXPENSE/ UNIT CONTRIBUTION MARGIN

= $ 162000/($30 -$21) (AS SALES PRICE EACH UNIT $30

AND VARIABLE EXPENSE PER UNIT $ 21)

= 162000/9 = 18000 UNITS

BREAK-EVEN POINT IN DOLLARS SALES = FIXED EXPENSE / CM RATIO = 162000 / 30%

=( 162000 X 100)/ 30 = $540000

(3) FOR TARGET PROFIT $72000, TOTAL UNITS REQUIRED= 18000 + 72000 / 9 = 18000+ 8000

= 26000 UNITS

(18000 REQUIRED FOR BREAK-EVEN AND 8000 FOR $72000 PROFIT, CONTRIBUTION OF EACH UNIT $30 - $21 = $9)

DOLLAR SALES FOR TARGET PROFIT = 26000 X 30 = $780000

(4) NEW VARIABLE EXPENSE PER UNIT =$21 - $3 = $ 18 , PER UNIT CONTRIBUTION( $30 - $18) = $ 12

NEW BREAK EVEN IN UNIT SALES = 162000 / 12 = 13500

NEW BREAK EVEN IN DOLLARS SALES = 13500 X 30 = $ 405000

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.