Question

Lindon Company is the exclusive distributor for an automotive product that sells for $48.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $324,000 per year. The company plans to sell 26,500 units this year.

Required:

1. What are the variable expenses per unit? (Round your "per unit" answer to 2 decimal places.)

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 $180,000 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.80 per unit. What is the company’s new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $180,000?

Answer 1

1)	Variable expense per unit
	48*70%
	33.6
2)	BEP(units) = fixed cost/contribution per unit
		324000/14.4
		22500
	BEP(dollar sales) = fixed cost/contribution margin
		324000/30%
		1080000
3)	unit sales = (fixed cost+target profit)/contribution per unit
		(324000+180000)/14.4
		35000	units
	dollar sales = 35000*48
		1680000
4)	new contribuiton = 14.4+4.80
			19.2
	BEP(units) = fixed cost/contribution per unit
		324000/19.2
		16875
	BEP(dollar sales) = 16875*48
		810000
	target profit		(324000+180000)/40%
			1260000
1	Varible expense per unit				33.6
2	Break even point in units				22500
	BEP in dollar sales				1080000
3	unit sales to attain target prodit				35,000
	dollar sales to attain target profit				1,680,000
4	new break even point				16875
	new break even sales dollars				810000
	dollar sales to attain target profit				1260000