Lindon Company is the exclusive distributor for an automotive product that sells
ID: 2417607 • Letter: L
Question
Lindon Company is the exclusive distributor for an automotive product that sells for $45.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $303,750 per year. The company plans to sell 6,000 units this year.
Required: 1. What are the variable expenses per unit? (Round your answer to 2 decimal places.)
2. Use the equation method:
a. What is the break-even point in unit sales and in dollar sales?
b. What amount of unit sales and dollar sales is required to earn an annual profit of $67,500?
c. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.50 per unit. What is the company’s new break-even point in unit sales and in dollar sales?
3. Repeat (2) above using the formula method.
a. What is the break-even point in unit sales and in dollar sales?
b. What amount of unit sales and dollar sales is required to earn an annual profit of $67,500?
c. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.50 per unit. What is the company’s new break-even point in unit sales and in dollar sales?
Explanation / Answer
Variable cost per unit = $45 * 70% = $31.5
2)(45 - 31.5 ) x = 303,750
x = 22,500 units
Break even sales 22,500 * 45 = $1,012,500
If wants to earn (45 - 31.5)x =303,750 +67,500
x = 27,500 units
Dollar sale 27,500 *45 = 1,237,500
New break even point
($45 - 27) x = 303,750
x = 16,875 units
Dollar sales = 16875 * 45 = $759,375
3) BEP = fixed cost/ contribtuion per unit
= 303,750/13.5 = 22,500 units
Sales = BEP/contribtuion ration = 303,750/30% = $1,012,500
if varible cost reduced by 4.50
then BEP = 303,750/18 = 16,875
Sales = 303,750/ 40% = $759,375
If profit of 67,500 is expected
BEP =371,250/13.5 = 27,500 units
BEP sales = 371,250/30% = 1,237,500
Variable cost per unit = $45 * 70% = $31.5
2)(45 - 31.5 ) x = 303,750
x = 22,500 units
Break even sales 22,500 * 45 = $1,012,500
If wants to earn (45 - 31.5)x =303,750 +67,500
x = 27,500 units
Dollar sale 27,500 *45 = 1,237,500
New break even point
($45 - 27) x = 303,750
x = 16,875 units
Dollar sales = 16875 * 45 = $759,375
3) BEP = fixed cost/ contribtuion per unit
= 303,750/13.5 = 22,500 units
Sales = BEP/contribtuion ration = 303,750/30% = $1,012,500
if varible cost reduced by 4.50
then BEP = 303,750/18 = 16,875
Sales = 303,750/ 40% = $759,375
If profit of 67,500 is expected
BEP =371,250/13.5 = 27,500 units
BEP sales = 371,250/30% = 1,237,500
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