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 $48.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $324,000 per year. The company plans to sell 26,500 units this year.

Lindon Company is the exclusive distributor for an automotive product that sells for $48.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $324,000 per year. The company plans to sell 26,500 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 $180,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.80 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 units Break-even point in dollar sales 3. Unit sales needed to attain target profit Dollar sales needed to attain target profit 4. New break-even point in unit sales New break-even point in dollar sales Doller sales needed to attain target profit

Explanation / Answer

1 Variable expenses per unit = 48*(1-0.3)=$33.6 2 Break even point in units = 324000/(48-33.6)= 22500 Break even point in dollar sales = 324000/30%= $1080000 3 Unit sales needed=(324000+180000)/(48-33.6)= 35000 Dollar sales needed=(324000+180000)/30%= $1680000 4 Revised variable expense per unit = 33.6-4.8= $28.8 Revised CM ratio = (48-28.8)/48 = 40% New Break even point in units = 324000/(48-28.8)= 16875 New Break even point in dollar sales = 324000/40%= $810000 Dollar sales needed=(324000+180000)/40%= $1260000

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