Question

In: Accounting

Lindon Company is the exclusive distributor for an automotive product that sells for $42.00 per unit...

Lindon Company is the exclusive distributor for an automotive product that sells for $42.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $264,600 per year. The company plans to sell 24,400 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 $138,600 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.20 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 $138,600?

Solutions

Expert Solution

1)variable expenses per unit = price [1-CM ratio]

                   = 42 [1-.30]

                   = 29.4 per unit

2)break-even point in unit sales =Fixed cost /unit contribution

                 = 264600 /12.6

                 = 21000 units

Breakeven in ($) =Fixed cost /CM ratio

          = 264600/.30

             = $ 882000

**unit contribuion = 42-29.4= 12.6

3)Unit sales to achieve target profit = [fixed cost+ target profit ]/unit contribution

        =[264600+138600[/12.6

        = 403200/12.6

            = 32000 units

$ sales to achieve to target profit = [fixed cost +target profit ]/CM ratio

          =[264600+138600]/.30

          =$ 1344000

4)Reduction In variable cost by $ 4.2 ,will increase contribution by 4.2 ,new contribution per unit = 12.6+4.2 = 16.8

CM ratio = contribution /price

         = 16.8/42 = .40 or 40%

BEP(unit) = 264600/16.8 = 15750 units

BEP($)= 264600/.40=$ 661500

Target profit ($) = [264600+138600]/.40

               = 1008000


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