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 $40 per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 per year. The company plans to sell 16,000 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? . What amount of unit sales and dollar sales is required to attain a target profit of $60,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4 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 $60,000?

Explanation / Answer

1) Variable Expense per unit $             28.00 Working: a. Contribution Margin per unit = Sales Per unt x CM Ratio = $    40.00 x 30% = $    12.00 b. Variable expense per unit = Sales per unit - Contribution Margin per unit = $    40.00 - $    12.00 = $    28.00 2) Break even point               15,000 Units Break even point $       6,00,000 Working: Break even point = Fixed Cost/ Contribution Margin per unit = $       1,80,000 / $    12.00 =               15,000 Units Break even point = Fixed Cost/ CM Ratio = $       1,80,000 / 30% = $       6,00,000 3) Traget unit sales               20,000 Units Target dollar sales $       8,00,000 Working: a.Calculation of target unit sales Fixed Costs           1,80,000 Target Profit               60,000 Target Contribution Margin           2,40,000 / Contribution Margin per unit                       12 Total units required               20,000 b. Calculation of target sales in dollars Target Contribution Margin           2,40,000 / CM ratio 30% Target Sales           8,00,000 4) a. Break even point 11250 Units Break even point $       4,50,000 Working: Revised Variable costs = $             28.00 - $       4.00 = $             24.00 Revised Contribution Margin per unit = Sales per unit - Variable costs per unit = $    40.00 - $    24.00 = $    16.00 Break even point = Fixed Costs / CM per unit =           1,80,000 / $    16.00 = 11250 Break even in dollar sales = Break even point x Sales per unit = 11250 x $    40.00 = $       4,50,000 b. Target dollar sales $       8,00,000 Working: Fixed Costs           1,80,000 target profit               60,000 target Contribution margin           2,40,000 / CM ratio 30% Target Sales           8,00,000

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