Question

Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%.

Answer 1

Answer:

Part 1 Break-even point in unit sales and in dollar sales

Break-even point in unit sales  = 15,000

Break-even point in dollar sales  = $ 600,000

Part 2 What amount of unit sales and dollar sales is required to attain a target profit of $60,000 per year

unit sales required to attain a target profit = 20,000

dollar sales required to attain a target profit = $ 800,000

Part 3 (A) The company is able to reduce its variable expenses by $4 per unit. What is the company’s new break-even point in unit sales and in dollar sales

Break-even point in unit sales = 11,250

Break-even point in dollar sales= $450,000

Part 3 (B)  the company is able to reduce its variable expenses by $4 per unit. What dollar sales is required to attain a target profit of $60,000

unit sales required to attain a target profit = 15,000

dollar sales required to attain a target profit = $ 600,000

Explanation:

Part 1 Break-even point in unit sales and in dollar sales

Break-even point in unit sales = Fixed Costs/ Contribution per unit

                                                    = $180,000 /  $40× 30%

                                                    = 15,000

Break-even point in dollar sales = Fixed Costs / Contribution Margin Ratio

                                                       = $180,000/0.30

                                                       = $ 600,000

Part 2 What amount of unit sales and dollar sales is required to attain a target profit of $60,000 per year

unit sales required to attain a target profit = (Fixed Costs + Target Profit)/Contribution per unit

                                                                   =($180,000+$60,000)/($40× 30%)

                                                                  = 20,000

dollar sales required to attain a target profit = unit sales required to attain a target profit × Selling Price per Unit

                                                                        = 20,000 × $40.00

                                                                        = $ 800,000

Part 3 (A) The company is able to reduce its variable expenses by $4 per unit. What is the company’s new break-even point in unit sales and in dollar sales

Break-even point in unit sales = Fixed Costs/ Contribution per unit

                                                    = $180,000 /  ($40-(($40× 70%) - $4))

                                                    = $180,000/ $16

                                                    = 11,250

Break-even point in dollar sales = Fixed Costs / Contribution Margin Ratio

                                                       = $180,000/ ($16/$40)

                                                       =  $180,000/ 0.40

                                                       = $450,000

Part 3 (B)  the company is able to reduce its variable expenses by $4 per unit. What dollar sales is required to attain a target profit of $60,000

unit sales required to attain a target profit = (Fixed Costs + Target Profit)/Contribution per unit

                                                                   =($180,000+$60,000)/$16

                                                                  = 15,000

dollar sales required to attain a target profit = unit sales required to attain a target profit × Selling Price per Unit

                                                                        = 15,000 × $40.00

                                                                        = $ 600,000