Lindon Company is the exclusive distributor for an automotiv

Lindon Company is the exclusive distributor for an automotive product that sells for $50.00 per unit and has a CM ratio of 30%. The company\'s fixed expenses are $345,000 per year. The company plans to sell 27,200 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 $195,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.00 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 Dollar sales needed to attain target profit

Solution

1)Variable expense per unit= Price [1-CM ratio]

      = 50[1-.30]

        = $ 35 per unit

2)BEP (units )= Fixed cost /(price -variable cost)

        = 345000/(50-35)

       = 345000/ 15

         = 23000 units

BEP ($)= Fixed cost /CM ratio

     = 345000/ .30

      = $ 1150000

3)Unit sales = [Fixed cost +target profit ]/[price -VC]

     =[345000+195000]/[50-35]

   = 540000/15

    = 36000 units

Dollar sales = [345000+195000]/.30

        = $ 1800000

4)New variable cost = 35-5 = 30

contribution per unit = 50-30 =20

CM ratio = 20/50 = .40 or 40%

New BEP (units) = 345000/20 = 17250 units

New BEP($) =345000/.40 = $ 862500

Dollar sales to attain target profit = [345000+195000]/ .40

           =540000/.40

            = $ 1,350,000