Lindon Company is the exclusive distributor for an automotive product that sells
ID: 2557006 • Letter: L
Question
Lindon Company is the exclusive distributor for an automotive product that sells for $22.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $105,600 per year. The company plans to sell 17,400 units this year.
Lindon Company is the exclusive distributor for an automotive product that sells for $22.00 per unit and has a CM ratio of 30% The company's fixed expenses are $105,600 per year. The company plans to sell 17,400 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 $39,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.20 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 profitExplanation / Answer
1.
Variable cost = Sales (1 – CM ratio)
= $ 22 x (1- 0.3) = $ 22 x 0.7 = $ 15.40
2.
Breakeven point in units = Fixed cost/Contribution margin per unit
= $ 105,600/ ($ 22 – $ 15.40)
= $ 105,600/ $ 6.60
= $ 16,000 units
Break-even point in units = 16,000 units
Break-even point in dollar = Break-even sales unit x sales per unit
= 16,000 x $ 22 = $ 352,000
3.
Profit = Unit CM x No. of units – Fixed cost
$ 39,600 = $ 6.60 x No. of units – $ 105,600
$ 6.60 x No. of units = $ 39,600 + $ 105,600 = $ 145,200
No. of units = $ 145,200/$ 6.60 = 22,000
Sales unit for $ 39,600 profit = 22,000 units
Sales dollar for $ 39,600 profit = No of units x sales per unit
= 22,000 x $ 22 = $ 484,000
4.
New contribution margin per unit =$ 22 – ($ 15.40 - $ 2.20) = $ 22 - $ 13.20 = $ 8.80
Breakeven point in units = Fixed cost/New contribution margin per unit
= $ 105,600/ $ 8.80
= $ 12,000 units
Break-even point in units = 12,000 units
Break-even point in dollar = Break-even sales unit x sales per unit
= 12,000 x $ 22 = $ 264,000
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