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 $54.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $388,800 per year. The company plans to sell 28,600 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 $226,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.40 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 3. Unit sales needed to attain target profit Dollar sales needed to attain target profit 4. New break-even point in unit sales New break-even point in dollar sales Dollar sales needed to attain target profit

Explanation / Answer

1.Variable expenses =$54*70% = $37.8

2. Break even point = Fixed cost/Contribution per unit

=$388,800/$16.2 = 24000 units

Break even point ($) = 24000*$54

= $12,96,000

3. Sales to attain a target profit of $226,800

$226,800= X*$54 -X*$37.8-$388,800

$615,600= $16.2 X

X = 38000 UNITS

Sales ($) = 38000*$54

= $2,052,000

4. New Break even point = $388,800/21.6

= 18000 units

Break even point ($) = 18000*$54 = $972,000

Sales to attain target profit :

$226,800= X*$54 -X*$32.4-$388,800

$615,600= $21.6X

X = 28500

X ($) = 28500*$54=1,539,000

  

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