Lindon Company is the exclusive distributor for an automotiv

Lindon Company is the exclusive distributor for an automotive product that sells for $22.00 per unit and has a CM ratio of 30%. The company\'s fixed expenses are $105,600 per year. The company plans to sell 17,400 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 $39,600 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.20 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

Solution

Answer:

1.

What are the variable expenses per unit

Variable Expense = $22*(100%-30%)

Variable Expense = $15.4
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2.

Use the equation method:

a.

What is the break-even point in unit sales and in dollar sales?

Selling Price

$22.00

100%

Variable Expense

$15.40

70%

Contribution Margin

$6.60

30%

Profit = Unit CM*Q-Fixed Expense

$0 = $6.6*Q - $105,600

6.6Q = $105,600

Q = 105,600/6.6

Q = 16,000 Units

Break-even point in unit sales: 16,000 Units

Break-even point in dollar sales: 16,00 Units*$28.50

Break-even point in dollar sales: $352,000
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b.

What amount of unit sales and dollar sales is required to earn an annual profit of $39600?

Profit = Unit CM*Q-Fixed Expense

$39,600 = $6.6*Q - $105,600

$6.6Q = $39600 + $105600

$6.6Q = $145200

Q = $145200/6.6

Q = 22,000 Units

Sales level in units: 22,000 Units

Sales level in dollars: 22,000 Units*$22

Sales level in dollars: $484,000

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c.

Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $2.2 per unit. What is the company’s new break-even point in unit sales and in dollar sales?

Selling Price

$22.00

100%

Variable Expense ($15.4-$2.2)

$13.20

60%

Contribution Margin

$8.80

40%

               

Profit = Unit CM*Q-Fixed Expense

$0 = 8.8*Q - $105,600

8.8Q = $105600

Q = $105600/8.8

Q = 12,000 Units

New break-even point in unit sales: 12,000 Units

New break-even point in dollar sales: 12000*$22

New break-even point in dollar sales: $264,000

Sales required for targeted profit of $39600

Profit = Unit CM*Q-Fixed Expense

$39,600 = $8.8*Q - $105,600

$8.8Q = $39600 + $105600

$8.8Q = $145200

Q = $145200/8.8

Q = 16,500 Units

Sales level in units: 16,500 Units

Sales level in dollars: 16,500 Units*$22

Sales level in dollars: $363,000

1.	What are the variable expenses per unit