Question

Lindon Company is the exclusive distributor for an automotive product that sells for $50.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $345,000 per year. The company plans to sell 27,200 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 $195,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.00 per unit. What is the company’s new break-even point in unit sales and in dollar sales?

Answer 1

Requirement 1
Variable Cost Per unit =	$50X70%
	$35 per Unit
If CM ratio is 30%, Variable Expense Ratio is 70%
Requirement 2
Break even in unit sales =	Fixed expenses/ contribution per unit
Contribution Per unit =	$50X30%
	= $15 per Unit
Break even in unit sales =	345,000/15
	=23,000 Units
Break even in dollar sales =	Break even units * selling price per unit
	=23,000 * 50
	=$1,150,000
Requirement 3
Target Profit	1,95,000
Fixed Expenses	3,45,000
Contribution Required	5,40,000
Contribution Per unit	15
Unit Sales (540000/15)	36,000
Dollar Sales (36000X50)	18,00,000
Requirement 4
Sale price per uint	50
Variable Expenses per unit(35-5)	30
Contribution per unit	20
Break even in unit sales =	Fixed expenses/ contribution per unit
Break even in unit sales =	345,000/20
	=17,250 Units
Break even in dollar sales =	Break even units * selling price per unit
	=17,250 * 50
	=$862,500