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 40%. The company’s fixed expenses are $273,600 per year. The company plans to sell 20,000 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 $72,000? (Do not round intermediate calculations.)

Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.10 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 $72,000? (Do not round intermediate calculations.)

Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.10 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 40%. The company’s fixed expenses are $273,600 per year. The company plans to sell 20,000 units this year.

Explanation / Answer

1) Variable expense per unit = sales - contribution margin

= $ 36 - ($36*40%)

= $ 21.6

2) a) break even point (unit) = Fixed cost / contribution

= 273600 / 14.4

= 19000 units

break even sales in dollars = Fixed cost / pv ratio

= 273600/ 40%

= $ 684000

pv ratio= contribution per unit/ sales per unit

= 14.4/ 36 *100

= 40%

b) Desired Sales units = (Desired profit + Fixed expense)/ contribution per unit

= (72000+273600)/ 14.4

= 24000 units

Desired sales (dollars) = (Desired profit + Fixed expense)/ pv ratio

= (72000+273600)/ 40%

= $ 864000

c) variable expense = 21.6-5.10 = 16.5

contribution per unit = 36 - 16.5 = 19.5

break even point units = 273600 / 19.5

= 14030 units

break even point dollars = 273600 / 54.16%

= $ 505170

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