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 $36.00 per unit and has a CM ratio of 34%. The company’s fixed expenses are $257,040 per year. The company plans to sell 22,000 units this year.

Required:

What are the variable expenses per unit? (Round your answer to 2 decimal places.)

What is the break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.)

What amount of unit sales and dollar sales is required to earn an annual profit of $61,200? (Do not round intermediate calculations.)

Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.50 per unit. What is the company’s new break-even point in unit sales and in dollar sales? (Do not round intermediate calculations. Round up break even point answers to the nearest whole number.)

What is the break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.)

What amount of unit sales and dollar sales is required to earn an annual profit of $61,200? (Do not round intermediate calculations.)

Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.50 per unit. What is the company’s new break-even point in unit sales and in dollar sales? (Do not round intermediate calculations. Round up break even point answers to the nearest whole number.)

Lindon Company is the exclusive distributor for an automotive product that sells for $36.00 per unit and has a CM ratio of 34%. The company’s fixed expenses are $257,040 per year. The company plans to sell 22,000 units this year.

Explanation / Answer

1.

Contribution margin ratio =34%

(sales per unit - variable cost per unit ) / sales per unit = 34%

(36-VC)/36 = 34%

36-VC=12.24

VC= 23.76 per unit

2.

a Break even point in units = fixed expenses / CM = 257040/(36-23.76) = 257040/12.24=21000 units

Break even point in dollars = price * Break even point in units = 36*21000=756000

b

to earn profit

units = (fixed expenses+profit) / CM = (257040+61200)/(36-23.76) = 257040/12.24=26000 units

dollars sales to earn reuired profit = price * units = 36*26000=936000

c.

new VC=23.76-3.50=20.26

a Break even point in units = fixed expenses / CM = 257040/(36-20.26) = 257040/12.24=16330.37 units

Break even point in dollars = price * Break even point in units = 36*16330.37=587893.27

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