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? (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 $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? What dollar sales is required to attain a target profit of $39,600?

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? (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 $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? What dollar sales is required to attain a target profit of $39,600?

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 $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? What dollar sales is required to attain a target profit of $39,600

Answer 1

1. What are the variable expenses per unit?

SP per unit = $22

Contribution per unit = CM ratio * SP

                        = 30% * $22 = $6.60

Variable exp per unit = $22 - $6.60 = $15.40

2. What is the break-even point in unit sales and in dollar sales?

BEP (in units) = Fixed expense/Contribution per unit

     = $105600/$6.60 = 16000 units

BEP (in dollar sales) = Fixed expense/CM ratio

           = $105600/30% = $352000

3. What amount of unit sales and dollar sales is required to attain a target profit of $39,600 per year?

Unit sales = (Fixed expense + Target Profit)/Contribution per unit

          = ($105600 + $39600)/$6.60 = 22000 units

Dollar sales = Unit sales * SP pu

               = 22000 units * $22 = $484000

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? What dollar sales is required to attain a target profit of $39,600?

New Variable expense per unit = $15.40 - $2.20 = $13.20

Contribution per unit = $22 - $13.20 = $8.80

BEP (in units) = Fixed expense/Contribution per unit

     = $105600/$8.80 = 12000 units

BEP (in dollar sales) = BEP in units * SP pu

                 = 12000 units * $22 = $264000

Target Profit = $39600

Dollar sales = [(Fixed expense + Target Profit)/Contribution per unit] * SP pu

    = [($105600 + $39600)/$8.80] * $22 = $363000