Lindon Company is the exclusive distributor for an automotive product that sells for $36.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $210,600 per year. The company plans to sell 22,300 units this year.

Required:

1. What are the variable expenses per unit? (Round your "per unit" answer to 2 decimal places.)

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 $102,600 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.60 per unit. What is the company's new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $102,600?

what is the

1. variable expense per unit
2. breakeven point in units
3. breakeven point in dollars
4. unit sales needed to attain target profit
5. dollar sales needed to attain target profit
6. new break even point in unit sales
7. new break even point in dollar sales
8. dollar sales needed to attain target profit

 

1. $25.20
2. 19,500 units
3. $702,000
4. 29,000 units
5. $1,044,000
6. 14,625 units
7. $526,500
8. $783,000

Step-by-step explanation

Requirement 1- Variable expenses per unit

Variable expenses per unit is equal to the selling price per unit multiplied by the variable expenses ratio.

Requirement 2- Breakeven point in units

Breakeven is the point at which the entity neither earns profit nor incurs loss. Basically, the bottom line figure in the income statement is nil or zero. The breakeven point in units is equal to fixed expenses divided by the contribution margin per unit.

Requirement 3- Breakeven point in dollars

Here, the requirement is to breakeven point expressed in dollar terms. It is calculated by dividing the fixed expenses by the contribution margin ratio.

Requirement 4- Unit sales needed to attain target profit

Actually, this topic falls into cost-volume-profit (CVP) analysis. It utilizes the interrelationship between costs and volume to plan profit. Here, the requirement is to determine the target unit sales to arrive at a predetermined profit.

To accomplish this objective, we simply divide the target contribution margin by the contribution margin per unit.

Requirement 5- Dollar sales needed to attain target profit

Meanwhile, the target dollar sales may be computed my multiplying the target unit sales by the selling price per unit or by dividing the target contribution margin by the contribution margin ratio.

Requirement 6- New break even point in unit sales

Another facet of CVP analysis is the sensitivity analysis. It involves implementing assumptions about changes in costs and/or volume to determine the new break-even point and target sales, as the case may be.

The same procedures generally apply; only that the changes need to be implemented.

Requirement 7- New break even point in dollar sales

After determining the new breakeven point in units, the new breakeven point in dollars may be computed by multiplying the new breakeven point in units by the selling price per unit or by dividing the fixed expenses by the new contribution margin ratio.

Requirement 8- Dollar sales needed to attain target profit

To determine the target sales, the same formulas as in requirements 4 and 5 would be applied.

Please see the attached file for the complete solution