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 $44 00 per unit and has a CM ratio of 30%. The company's fixed expenses are $283,800 per year. The company plans to sell 25,100 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 $151,800 per year? 4 Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.40 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 unts Break-even point in dollar sales Dolar sales needed to attain target proft New break-even point in dolar sales 3 Unit sales needed to attain target prot New break-even point in unit sales Dofer sales needed to attain target prot

Explanation / Answer

Answer to Part 1.

Contribution Margin ratio = 30%
Variable Expense Ratio = 1 - Contribution Margin Ratio
Variable Expense Ratio = 1 – 0.30
Variable Expense Ratio = 0.70 or 70%

Variable Expense Ratio = Variable Expense / Selling Price * 100
70 = Variable Expense / 44 * 100
Variable Expense = $30.80 per unit

Answer to Part 2.

Break Even Point (in Units) = Fixed Cost / Contribution Margin per Unit
Contribution Margin per Unit = 30% of $44
Contribution Margin per Unit = $13.20

Break Even Point (in Units) = 283,800 / 13.20
Break Even Point (in Units) = 21,500 Units

Break Even Point (in Dollar Sales) = Fixed Cost / Contribution Margin Ratio
Break Even Point (in Dollar Sales) = 283,800 / 0.30
Break Even Point (in Dollar Sales) = $946,000

Answer to Part 3.

Profit = Contribution Margin – Fixed Cost
Let the No. of units sold be “x” units
$151,800 = ($13.20 * x) - $283,800
$151,800 = $13.20 x - $283,800
$13.20 x = $435,600
x = 33,000 Units

Therefore, 33,000 Units must be sold to attain Target profit of $151,800.

Units Sales needed to attain Target profit = 33,000 Units

Dollar Sales needed to attain target Profit = 33,000 * $44
Dollar Sales needed to attain target Profit = $1,452,000

Answer to Part 4.

Expected Variable Cost per Unit = $30.80 - $4.40
Expected Variable Cost per Unit = $26.40

Expected Contribution Margin per Unit = $44.00 - $26.40
Expected Contribution Margin per Unit = $17.60

Break Even Point (in Units) = Fixed Cost / Contribution Margin per Unit
New Break Even Point (in Units) = 283,800 / 17.60
New Break Even Point (in Units) = 16,125 Units

Break Even Point (in Dollar Sales) = Fixed Cost / Contribution Margin Ratio
New Contribution Margin Ratio = 17.60 / 44.00 * 100
New Contribution Margin Ratio = 40%

New Break Even Point (in Dollar Sales) = 283,800 / 0.40
New Break Even Point (in Dollar Sales) = $709,500

Profit = Contribution Margin – Fixed Cost
Let the No. of units sold be “x” units
$151,800 = ($17.60 * x) - $283,800
$151,800 = $17.60 x - $283,800
$17.60 x = $435,600
x = 24,750 Units

24,750 Units must be sold to attain Target profit of $151,800.

Dollar Sales needed to attain target Profit = 24,750 * $44
Dollar Sales needed to attain target Profit = $1,089,000

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