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 $31.50 per unit and has a CM ratio of 30%. The company's fixed expenses are $187,110 per year. The company plans to sell 9,600 units this year. Required: 1. What are the variable expenses per unit? (Round your answer to 2 decimal places.) Variable expensos .iper unit 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 dollar sales is required to earn an annual profit of $47,250? Sales level in units Sales level in dollars c. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.15 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

Explanation / Answer

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CM ratio = (sales – variable cost)/ sales price

.3 = (31.50 – X)/31.50

9.45 = 31.5 – X

X = 31.5 – 9.45

X = 22.05 per unit

Variable cost per unit = 22.05

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Break-even point is the level of sales that a company must achieve to reach at no profit no loss situation,

The formula to calculate BEP (in units) = Total Fixed cost/(selling price per unit - variable cost per unit)

Where,

Fixed cost = $187110

Selling price = 31.5 per unit

Variable cost = 22.05 per unit

Let's put all the values in the formula to get the BEP in units,

BEP = 187110/ (31.5 - 22.05)

BEP = 187110/9.45

BEP = 19800 Units

So to reach the BEP company must sell 19800 units

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Break-even point in $ can be calculated by multiplying BEP in units with sale price per unit

BEP in $ = BEP units * sales price per unit

BEP in $ = 19800 * 31.5

BEP in $ = 623700

So BEP in $ is 623700

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Sale required to achieve desired profit = (Fixed cost + Desired profit)/ (Sales price per unit - Variable cost per unit)

Where,

Fixed cost = $187110

Selling price = $31.5

Variable cost = $22.05

Desired profit = $47250

Let's put all the values in the formula,

Required sale = (187110 + 47250)/ (31.5 - 22.05)

                             = 234360/ 9.45

                             = 24800

So to reach desired profit of $47250 required units that must be sold is 24800 units

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Sales in $ for desired profit = 24800*31.5 = 781200

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Hope this answer your query.

Feel free to comment if you have further query. J

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