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 $24.00 per unit and has a CM ratio of 30%. The i company's fixed expenses are $118.800 per year. The company plans to sell 18,100 units this year. Required: 1. What are the variable expenses per unit? 12. What is the break-even point in unit sales and in dollar sales? 13. What amount of unit sales and dollar sales is required to attain a target profit of $46,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.40 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 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 = $ 16.80

Selling price per unit = $ 24

Contribution per unit = $ 7.20 ($24*30%)

So,Variable cost per unit = $ 24 - $ 7.20 = $ 16.80

2. Break-even point in units and sales dollar

Break-even point in units = Fixed Cost / Contribution per unit

                                      = $118800 / $7.20

                                      = 16,500 Units

Break-even point in sales dollars = Fixed Cost / Contribution ratio                             

                                                = $118800 / 0.30

                                                = $3,96,000

3. Sales level in units and in sales dollars is required to earn an annual profit of $46800

Sales level in units         = (Fixed Cost+Profit) / Contribution per unit

                                      = ($118800+$46800 / $7.20

                                      = 23,000 Units

Sales level in dollar s= (Fixed Cost+Profit) / Contribution ratio

                                      = ($118800+$46800 / 0.30

                                      = $ 5,52,000

4. company's new break-even point in units and sales dollars

New break-even point in units                            = 12375 units

New break-even point in sales dollars      = $2,97,000

Dollar sales needed to attain target profit          = $ 4,14,000        

New Variable expenses = $ 16.80 - $2.40 = $14.40 per unit

New Contribution Margin = $ 24 - $14.40 = $9.6 per unit

Profit = Unit CM × Q ? Fixed expenses

$0 = $9.6 × Q ? $118800

$9.6Q = $118800

Q = $118800 ÷ $9.6

Q = 12375 units

In sales dollars = 12375 units × $24 per unit = $2,97,000

Dollar sales needed to attain target profit

Dollar sales needed to attain target profit

=( Fixed Expenses + Target Profit) / New Contribution ratio

New Contribution ratio = ($9.60/$24) * 100 = 40%

Dollar sales needed to attain target profit = ($118800+$46800 ) / 0.40

                                                               = $ 4,14,000   

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