https://newconnect.mheducation.com/flow/connect.html Saved 0 Lindon Company is t
ID: 2523525 • Letter: H
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https://newconnect.mheducation.com/flow/connect.html Saved 0 Lindon Company is the exclusive distributor for an automotive product that sells for $56.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $411,600 per year. The company plans to sell 29,300 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 $243,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.60 per unit. What is the ed company's new break-even point in unit sales and in dollar sales? ook 1. Variable expense per unit 2. Break-even point in units rint Break-even point in dollar sales 3. Unit sales needed to attain target profit Dolar sales needed to attain target profit 4. New break-even point in unit saies New break-even point in dollar sales Doller sales needed to attain target profitExplanation / Answer
1. Variable Expenses per unit = Sale price per unit * (1 - CM Ratio)
= 56 * (1 - 30%)
= 56 * 70%
= $39.20
2. At break even point, total fixed cost is equal to the contribution amount.
Total Fixed expenses = $411,600
Therefore, contribution at break even point = $411,600
CM Ratio = 30%
Break even sales = Contribution at break even point / CM Ratio
= 411600 / 30%
= $1,372,000
Break even sales in units = $1,372,000 / $56
= 24500 units.
3. Target Profit = $243,600
Target Contribution = Target Profit + Total Fixed Expenses
= 243600 + 411600
= $655,200
Sales to achieve target profit = Target Contribution / CM Ratio
= 655200 / 30%
= $2,184,000
Unit sales needed to attain target profit = $2,184,000 / $56
= 39,000 units.
4. New Variable expenses per unit = Existing variable expenses per unit - $5.60
= $39.2 - $5.6
= $33.6
CM Ratio = ( (Sale Price - Variable Expenses) / Sale Price ) * 100
= ((56 - 33.6) / 56) * 100
= 40%
Total Fixed Expenses = 411600
New break even point = Contribution at break even point / New CM Ratio
= 411600 / 40%
= $1,029,000
New break even point in units = $1,029,000 / $56
= 18,375 units.
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