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 $28.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $147,000 per year. The company plans to sell 19,500 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 $63,000 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.80 per unit. What is the company’s new break-even point in unit sales and in dollar sales?

Explanation / Answer

CM Ratio=Sales-Variable expenses *100

Sales

Sales=$28*19500

=$546000

30= 546000-Variable expenses *100

546000

Variable expenses=$382200

Variable expense per unit=382200/19500

=$19.6/unit

Break even point in dollar sales= Total Fixed costs/CM Ratio

=147000/ 0.30

=$490000

Break even point in unit sales= Fixed Cost   

Sale price per unit-Variable cost per unit

=147000/(28-19.6)

=147000/8.4

=17500 units

Break even point in dollar sales=Break even point in units*selling price per unit

=17500*28

$490000

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