Question

Lindon Company is the exclusive distributor for an automotive product that sells for $32.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $177,600 per year. The company plans to sell 20,900 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 $81,600 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.20 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 $81,600?

Answer 1

• Requirement 1

A	Sale price per unit	$                                                  32.00
B	CM Ratio	30%
C= A x B	Contribution margin per unit	$                                                     9.60
D = A - C	Variable expense per unit	$                                                  22.40

• Requirement 2

A	Fixed Expenses	$177,600
B	Contribution margin per unit	$                                                     9.60
C = A/B	Break even point in units	18500
D = C x $ 32	Break even point in dollars sale	$592,000

• Requirement 3

A	Target Profit	$81,600
B	Fixed Expenses	$177,600
C = A+B	Total contribution margin	$259,200
D	Contribution margin per unit	$                                                     9.60
E=C/D	Units required to attain target profit	27000
F = E x $ 32	Dollar sales required to attain target profits	$864,000

• Requirement 4

A	Fixed Expenses	$177,600
B = $ 9.6 +3.2	Contribution margin per unit	$                                                  12.80
C = A/B	New Break even units required	13875
D = C x $ 32	New Dollar sales	$444,000