Lindon Company is the exclusive distributor for an automotive product that sells
ID: 2397375 • Letter: L
Question
Lindon Company is the exclusive distributor for an automotive product that sells for $30.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $162,000 per year. The company plans to sell 20,200 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 $72,000 per year?
4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.00 per unit. What is the company’s new break-even point in unit sales and in dollar sales?
Explanation / Answer
Answers
A
Unit Sales Price
$ 30.00
B
CM ratio
30%
C=A x B
Unit Contribution margin
$ 9.00
D = A - C
Variable expenses per unit [Answer 1]
$ 21.00
E
Fixed expenses
$ 162,000.00
F = E/C
Break Even point in units [Answer 2]
18000
G = E/B
Break Even point in dollar sales [Answer 2]
$ 540,000.00
A
Target Profit
$ 72,000.00
B
Fixed expenses
$ 162,000.00
C=A+B
Total contribution required
$ 234,000.00
D
Unit Contribution margin
$ 9.00
E=C/D
Unit Sales needed to attain target profit [Answer 3]
26000
F
CM ratio
30%
G = C/F
Dollar Sales needed to attain Target profits [Answer 3]
$ 780,000.00
A
Current Unit contribution margin
$ 9.00
B
Reduction in Variable expenses
$ 3.00
C=A+B
New unit contribution margin
$ 12.00
D=C/$30
New CM ratio
40%
E
Fixed expenses
$ 162,000.00
F = E/C
New Break Even point in Unit Sales [Answer 4]
13500
G = E/D
New Break Even point in Dollar sales [Answer 4]
$ 405,000.00
A
Unit Sales Price
$ 30.00
B
CM ratio
30%
C=A x B
Unit Contribution margin
$ 9.00
D = A - C
Variable expenses per unit [Answer 1]
$ 21.00
E
Fixed expenses
$ 162,000.00
F = E/C
Break Even point in units [Answer 2]
18000
G = E/B
Break Even point in dollar sales [Answer 2]
$ 540,000.00
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