Lindon Company is the exclusive distributor for an automotive product that sells
ID: 2585301 • Letter: L
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.) 22.05 per unit 2. Use the equation method: a. What is the break-even point in unit sales and in dollar sales? ak-even point in unit sales 19.800 Break-even point in dollar sales $ 623,700 b. What amount of unit sales and dollar sales is required to earn an annual profit of $47,250? 24,800 781.200 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 S3.15 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 salesExplanation / Answer
2c. Break even point in unit sales = Total fixed Cost / Contribution Margin per unit
Break even point in dollar sales = Total fixed Cost / Contribution Margin Ratio
New variable Expense = 22.05-3.15 = $18.90
New Contribution Margin per unit = 31.50-18.90 = $12.60 per unit
New CM ratio =( 12.60 / 31.50 ) * 100 = 40%
BEP in unit sales = 187,110 / 12.60 = 14,850 units
BEP in dollar sales = 187,110 / 40% = $467,775
3a. BEP in unit sales = Fixed Cost / Contribution per unit = 187,110 / 9.45 = 19,800 units
Contribution per unit = Selling price per unit * CM ratio = 31.5 * 30% = $9.45
BEP in dollar sales = Fixed Cost / CM ratio = 187,110 / 30% = 623,700
3b. Required amount of unit sales = Fixed Cost + Profit / Contribution per unit
= 187,110 + 47,250 / 9.45 = 24,800
Required amount of dollar sales = Fixed Cost + Profit / Contribution Ratio
= 187,110 + 47,250 / 30% = $781,200
3c. The answer would be the same as calculated in point 2c above.
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