Lindon Company is the exclusive distributor for an automotive product that sells

Question

Lindon Company is the exclusive distributor for an automotive product that sells for $4400 per unit and has a CM ratio of 30%. The company's fixed expenses are $283,800 per year. The company plans to sell 25,100 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 $151,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.40 per unit. What is the company's new break-even point in unit sales and in dollar sales? 1. Variable expense per unit 2. Break-even point in units Break-even point in dollar sales Dollar sales needed to attain target profit New break-even point in dollar sales 3. Unit sales needed to attain target profit 4. New break-even point in unit sales Dollar sales needed to attain target profit

Explanation / Answer

Answer of Part 1:

Variable Expenses per unit =Selling price *(100% -Contribution Margin ratio)
Variable Expenses per unit = $44 * (100% - 30%)
Variable Expenses per unit = $44 * 70%
Variable Expenses per Unit = $30.8

Answer of Part 2:

Contribution Margin per unit = Selling price - Variable Expenses
Contribution Margin per unit = $44 - $30.8
Contribution Margin per unit =$13.2

Profit = Contribution Margin unit * Q – Fixed Expenses
0 = $13.2 * Q - $283,800
0 = $13.2Q - $283,800
$13.2Q = $283,800
Q = $283,800 / $13.2
Q = 21,500 units

Break Even Point in Units Sales = 21,500 units

Break Even point in Dollars Sales = 21,500 * $44
Break Even Point in Dollars Sales = $946,000

Answer of Part 3:

Profit = Contribution Margin Unit *Q – Fixed Expenses
$151,800 = $13.2*Q - $283,800
$151,800 = $13.2Q - $283,800
$151,800 + $283,800 = $13.2Q
$435,600 = $13.2Q
Q = $435,600 / $13.2
Q = 33,000 units

Units Sales needed to attain target profit is 33,000 units

Dollar Sales needed to attain target profit = 33,000 * $44
Dollar Sales needed to attain target profit = $1,452,000

Answer of Part 4:

New Variable Expenses = $30.8 - $4.40
New Variable Expenses per unit = $26.4

Contribution Margin per unit = $44 - $26.4
Contribution Margin per unit = $17.6

Profit = Contribution margin per unit * Q – Fixed Expenses
0 = $17.6 *Q - $283,800
$283,800 = $17.6Q
Q = $283,800 / $17.6
Q = 16,125 units

New Break Even point in units sales = 16,125 units

New Break Even Point in Dollar Sales = 16,125 * $44
New Break Even Point in Dollar Sales = $709,500

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