Ch 5 Home Work

Lindon Company is the exclusive distributor for an automotive product that sells for $15.00 per unit and has a CM ratio of 30%. The company?s fixed expenses are $74,250 per year. The company plans to sell 14,000 units this year.

Required:

1.

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

2. Use the equation method:

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

• What amount of unit sales and dollar sales is required to earn an annual profit of $22,500?

• Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.50 per unit. What is the company?s new break-even point in unit sales and in dollar sales?

3. Repeat (2) above using the formula method.

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

b. What amount of unit sales and dollar sales is required to earn an annual profit of $22,500?

c. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.50 per unit. What is the company?s new break-even point in unit sales and in dollar sales?

Ch 5 Home Work Lindon Company is the exclusive distributor for an automotive product that sells for $15.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $74,250 per year. The company plans to sell 14,000 units this year. Required: 1. What are the variable expenses per unit? (Round your answer to 2 decimal places.) 2. Use the equation method: a. What is the break-even point in unit sales and in dollar sales? b. What amount of unit sales and dollar sales is required to earn an annual profit of $22,500? c. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.50 per unit. What is the company's new break-even point in unit sales and in dollar sales? 3. Repeat (2) above using the formula method. a. What is the break-even point in unit sales and in dollar sales? b. What amount of unit sales and dollar sales is required to earn an annual profit of $22,500? c. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.50 per unit. What is the company's new break-even point in unit sales and in dollar sales? Answer 1 Computation of Variable Expenses per unit Let the variable cost per unit be x Also, Contribution Margin Ratio Or, Or, Or, Or, x x = Sales - Variable Cost Sales 0.7 = 15.00 - x 15 10.5 = 15.00-x = 15.00-10.50 = 4.50 Therefore, Variable Cost per unit is $ 4.50 Answer 2 a Or, Or, Or, Or, Or, Break-even Point in Sales Units Let the break even units be x. We know that at Break Even point , Profit is nil. Hence, Sales-Variable Cost - Fixed Cost = Profit 15x - 4.50x - 74,250 = 0 15x - 4.50x = 74,250 10.5x = 74,250 x = 74,250/10.50 x = 7,071.43 Answer 2 b Computation of Sales Un Let the sales units be z Or, Or, Or, Or, Or, Therefore, at 9214.29 units, there will be a profi Therefore, Break even sales is 7071 units. Or, Or, Or, Or, Or, Break-even Point in Sales Dollars Let the break even Sales dollars be x. We know that at Break Even sales , Profit is nil. Hence, Sales-Variable Cost - Fixed Cost = Profit x - (4.5x/15) - 74250 = 0 x - 0.30x = 74,250 0.70 x = 74,250 x = 74250/0.70 x = 106,071.43 Therefore, Break- even Sales is $106071.43 Computation of Sales Dol Or, Or, Or, Or, Or, Therefore, at $138214.29 sales, there will be a Answer 2 b Answer 2 c Computation of Sales Units Let the sales units be z Sales-Variable Cost - Fixed Cost 15x - 4.50x - 74,250 15x - 4.50x 10.5x x x = Profit = 22,500.00 = 22500+74250 = 96,750.00 = 96,750/10.50 = 9,214.29 Or, Or, Or, Or, Or, Therefore, at 9214.29 units, there will be a profit of $22500.00 Computation of Sales Dollars Let the sales volume be z Sales-Variable Cost - Fixed Cost = Profit z - (4.5 x z/15) - 74250 = 22,500.00 z - (4.5 x z/15) = 22500+74250 z - 0.30z = 96,750.00 0.70 z = 96,750.00 z = 138,214.29 Therefore, at $138214.29 sales, there will be a profit of $22500.00 Or, Or, Or, Or, Or, Answer 2 c Break-even Point in Sales Units Let the break even units be x. We know that at Break Even point , Profit is nil. Hence, Sales-Variable Cost - Fixed Cost = Profit 15x - 1.50x - 74,250 = 0 15x - 1.50x = 74,250 13.5x = 74,250 x = 74,250/13.50 x = 5,500.00 Therefore, Break even sales is 5500 units. Break-even Point in Sales Dollars Let the break even Sales dollars be x. We know that at Break Even sales , Profit is nil. Hence, Sales-Variable Cost - Fixed Cost = Profit x - (1.5x/15) - 74250 = 0 x - 0.10x = 74,250 0.90 x = 74,250 x = 74250/0.90 x = 82,500.00 Therefore, Break- even Sales is $82500 Answer 3 a Answer 3 b Break-even Point in Sales Units Break - Even Sales Units = Computation of Sales Units Fixed Cost Contribution Pu = Break - Even Sales Units 74250 15.00-4.50 7,071.43 = Break-even Point in Sales Dollars = = = Where, Contribution margin = = Contribution Sales pu 10.5 15 Therefore, Break- even Sales is $106071.43 = Computation of Sales Dollars Fixed Cost Contribution margin 74250 0.7 106,071.43 = = Therefore, at 9214.29 units, there will be a profit of $22500.00 Therefore, Break even sales is 7071 units. Break Even Sales Dollars = Break Even Sales Dollars = = = Where, Contribution margin = = 0.70 = Therefore, at $138214.29 sales, there will be a profit of $22500.00 Answer 3 c tation of Sales Units Break-even Point in Sales Units Fixed Cost + Profit Contribution Pu Break - Even Sales Units 74250 + 22500 15.00-4.50 9,214.29 nits, there will be a profit of = Fixed Cost Contribution Pu = 74250 15.00-1.50 5,500.00 = Therefore, Break even sales is 5500 units. ation of Sales Dollars Break-even Point in Sales Dollars Fixed Cost + Profit Contribution margin 74250 + 22500 0.7 138,214.29 Contribution Sales pu 10.5 15 Break Even Sales Dollars = = = Where, Contribution margin Fixed Cost Contribution margin 74250 0.9 82,500.00 = = 0.70 29 sales, there will be a profit of = Therefore, Break- even Sales is $82500 Contribution Sales pu 13.5 15 0.90 1. What are the variable expenses per unit? (Round your answer to 2 decimal places.) Variable Expenses per unit = Price x (1-CM Ratio) Variable Expenses per unit = 15 x (1 - 0.30) = $10.50 2. Use the equation method: a. What is the break-even point in unit sales and in dollar sales? Break Even Point Equation = Px = vx + FC + Profit P = Price per unit = 15 x = Quantity = 14,000. FC = 74,250. Profit = 0 Break Even Point in units = x = FC / p - v X = 74,250 / (15 - 10.50) = 16,500 units In dollars = 16,500 x 15 = $247,500 b. What amount of unit sales and dollar sales is required to earn an annual profit of $22,500? Unit sales = FC + Profit / p - v Unit sales = (74,250 + 22,500) / (15 - 10.50) = 21,500 units Dollar Sales = 21500 x 15 = $322,500 c. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.50 per unit. What is the company's new break-even point in unit sales and in dollar sales? New Variable Cost = 10.50 - 1.50 = $9 Break Even Point in units = x = FC / p - v X = 74,250 / (15 - 9) = 12,375 units In dollars = 12,375 x 15 = $185,625 3. Repeat (2) above using the formula method. a. What is the break-even point in unit sales and in dollar sales? Break Even Point = Fixed Cost / Contribution per Unit Break Even Point = 74,250 / 4.50 = 16,500 units b. What amount of unit sales and dollar sales is required to earn an annual profit of $22,500? Unit sales required = (74,250 + 22,500) / 4.50 = 21,500 units c. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $1.50 per unit. What is the company's new break-even point in unit sales and in dollar sales? New Variable Cost = 10.50 - 1.50 = $9 New Break Even Point = 74,250 / 6 = 12,375 units In dollars = 12,375 x 15 = $185,625