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 $47.00 per unit and has a CM ratio of 34%. The company's fixed expenses are $399,500 per year. The company plans to sell 26,000 units this year Required: 1. What are the variable expenses per unit? (Round your answer to 2 decimal places.) Variable expenses per unt 2. Use the equation method: a. What is the break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.) Break-even point in unit sales Break-even point in dollar sales

Explanation / Answer

1. Variable expenses =$47*(100%-34%)= $31.02

2.a Break even point (Equation method)

$47* U= $31.02*U+$399,500+ 0 (profit)

Units = $399,500/$15.98

Units = 25,000

Break even point ($) = 25000*$47

= $1,175,000

2.b  sales level in units and in sales dollars is required to earn an annual profit of $79,900

   $47* U= $31.02*U+$399,500+ $79,900

$479,400=$15.98 units

Units = 30,000

  Sales value = 30,000*$47

=$1,410,000

2.c

Variable cost =$ 31.02- $5

= $26.02

Contribution = $47-$26.02

= $20.98

Break even point = $399,500/$20.98

= 19,042 units

Break even point ($) = 19,042*$47

= $894,974

3..a Break even point =Fixed cost/Contribution per unit

Contribution = Selling price- Variable cost

=$47-$31.02 = $15.98

Break even point = $399,500/$15.98

= 25000 units

Break even point ( in $) = $399,500/ ( $15.98/$47)

= $1,175,000

3.b sales level in units and in sales dollars is required to earn an annual profit of $79,900

Profit = (Contribution margin * Quantity) - Fixed Expense

$79,900= ($15.98*Q) - $399,500

$479,400= $15.98Q

Q= 30,000 units

Sales value = 30,000*$47

=$1,410,000

3..c Variable cost =$ 31.02- $5

= $26.02

Contribution = $47-$26.02

= $20.98

Break even point = $399,500/$20.98

= 19,042 units

Break even point ($) = 19,042*$47

= $894,974

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