Question

Lindon Company is the exclusive distributor for an automotive product that sells for $52.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $366,600 per year. The company plans to sell 27,900 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 $210,600 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.20 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 $210,600?

Answer 1

	Sales price per unit	$52.00
Less:	Variable expenses per unit($52.00*70%)	$36.40
	Contribution margin per unit	$15.60
	Contribution margin(27900*$15.60)	$4,35,240.00
Less:	Fixed expenses	$3,66,600.00
	Net Income	$68,640.00
	Break even point in units($366,600/$15.60)	23500	units
	Break even point in dollars($366,600/30%)	$12,22,000.00
	Target Profit	$2,10,600.00
Add:	Fixed expenses	$3,66,600.00
	Target contribution margin	$5,77,200.00
	Target Sales($577,200/30%)	$19,24,000.00
	Target sales in units($1,924,000/$52)	37000	units
	Sales price per unit	$52.00
	Variable expenses per unit($52.00*70%)	$31.20
	Contribution margin per unit	$20.80
	Contribution margin(27900*$20.80)	$5,80,320.00
	Fixed expenses	$3,66,600.00
	Net Income	$2,13,720.00
	Contribution margin ratio($20.80/$52)	40%
	Break even point in units($366,600/$20.80)	17625	units
	Break even point in dollars($366,600/40%)	$9,16,500.00
	Target Profit	$2,10,600.00
Add:	Fixed expenses	$3,66,600.00
	Target contribution margin	$5,77,200.00
	Target Sales($577,200/40%)	$14,43,000.00
	Target sales in units($1,443,000/$52)	27750	units