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tankabanditka [31]

3 years ago

14

Lindon Company is the exclusive distributor for an automotive product that sells for $54.00 per unit and has a CM ratio of 30%.

The company’s fixed expenses are $388,800 per year. The company plans to sell 28,600 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 $226,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.40 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 $226,800?

1 answer:

matrenka [14]3 years ago

4 0

Answer:

Results are below.

Explanation:

<u>First, we need to calculate the unitary variable cost:</u>

Unitary variable cost= (1 - Contribution margin ratio)*selling price

Unitary variable cost= 0.70*54

Unitary variable cost= $37.8

<u>Now, the break-even point in units and dollar</u>s:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 388,800 / (54 - 37.8)

Break-even point in units= 24,000

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 388,800 / 0.3

Break-even point (dollars)= $1,296,000

<u>If the desired profit is $226,800; the following formula is required:</u>

Break-even point in units= (fixed costs + desired profit) / contribution margin per unit

Break-even point in units= (338,800 + 226,800) / 16.2

Break-even point in units= 34,914

Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio

Break-even point (dollars)= 565,600 / 0.3

Break-even point (dollars)= $1,885,333

<u>Finally, if the variable cost per unit decreases by $5.4:</u>

Unitary variable cost= $32.4

Break-even point in units= 388,800 / (54 - 32.4)

Break-even point in units= 18,000

Contribution margin ratio= unitary CM / Selling price

Contribution margin ratio= 21.6/54= 0.4

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 388,800 / 0.4

Break-even point (dollars)= 972,000

Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio

Break-even point (dollars)= (388,800 + 226,800) / 0.4

Break-even point (dollars)= $1,539,000

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The formula for compound interests is the following:

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$I=2600*(1+0.05)^8=3841.38$

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<u></u>

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