2. Exercise 5-14 Break-Even and Target Profit Analysis [LO5-3, L05-4, LO5-5, LO5

Question

2. Exercise 5-14 Break-Even and Target Profit Analysis [LO5-3, L05-4, LO5-5, LO5-61 Lindon Company is the exclusive distributor for an automotive product that sells for $27. 00 per unt and has CM ratio of 30% The cornpany s fixed expenses are $153,090 per year The company plans to sell 10,800 units this year Required: 1 What are the variable expenses per unik? (Round your answer to 2 decimal places.) 18 90 per unt 2 Use the equation method a What is the break-even point in unit sales and in dollar sales? Break-even point in unit sales Break-even point in dollar sales b What amount of unit sales and dolar sales is required to earn an annual prolit of $40,5007 Sales level in units Sales level in dollars c Assume that by using a more efficlent shipper, the company is able to reduce its variable expenses by $2 70 per unit. What is the company's new break-even point in unit sales and in dollar sales New break-even point in unit sales New break-even point in dollar sales Repeat (2) above using the formula method

Explanation / Answer

1) Contribution per unit = 27*30% = 8.1

Variable expenses = 27 - 8.11 = 18.90

2) a) Break even point in unit sales = 153090/8.1 = 18900 units

Break even point in dollar sales = 18900*27 = 510300

b)

Break even point in unit sales = (153090 + 40500)/8.1 = 193590/8.1 = 23900 units

Break even point in dollar sales = 23900*27 = 645300

c) contribution margin per unit = 27 - (18.9-2.70) = 27 - 16.20 = 10.8

New Break even point in unit sales = 153090/10.80 = 14175 units

Break even point in dollar sales = 14175*27 = 382725

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