Question

In: Accounting

Lindon Company is the exclusive distributor for an automotive product that sells for $30.00 per unit...

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?

Solutions

Expert Solution

  • All working forms part of the answer
  • Requirement 1 and 2

A

Unit Sales Price

$                                     30.00

B

CM ratio

30%

C=A x B

Unit Contribution margin

$                                        9.00

D = A - C

Variable expenses per unit [Answer 1]

$                                     21.00

E

Fixed expenses

$                           162,000.00

F = E/C

Break Even point in units [Answer 2]

18000

G = E/B

Break Even point in dollar sales [Answer 2]

$                           540,000.00

  • Requirement 3

A

Target Profit

$                             72,000.00

B

Fixed expenses

$                           162,000.00

C=A+B

Total contribution required

$                           234,000.00

D

Unit Contribution margin

$                                        9.00

E=C/D

Unit Sales needed to attain target profit [Answer 3]

26000

F

CM ratio

30%

G = C/F

Dollar Sales needed to attain Target profits [Answer 3]

$                           780,000.00

  • Requirement 4

A

Current Unit contribution margin

$                                        9.00

B

Reduction in Variable expenses

$                                        3.00

C=A+B

New unit contribution margin

$                                     12.00

D=C/$30

New CM ratio

40%

E

Fixed expenses

$                           162,000.00

F = E/C

New Break Even point in Unit Sales [Answer 4]

13500

G = E/D

New Break Even point in Dollar sales [Answer 4]

$                           405,000.00


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