Exercise 5-14 Break-Even and Target Profit Analysis [LO5-3, LO5-4, LO5-5, LO5-6]

Lindon Company is the exclusive distributor for an automotive product that sells for $37.00 per unit and has a CM ratio of 39%. The companys fixed expenses are $432,900 per year. The company plans to sell 31,000 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? (Do not round intermediate calculations.) break even point in unit sales? break-even point in dollar sales?

b.	What amount of unit sales and dollar sales is required to earn an annual profit of $72,150? (Do not round intermediate calculations.) sales level in units? sales level in dollars?

c.

Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.80 per unit. What is the companys new break-even point in unit sales and in dollar sales? (Do not round intermediate calculations. Round up break even point answers to the nearest whole number.) new break even point in unit sales? new break even point 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? (Do not round intermediate calculations.) break even point in unit sales? break even point in dollar sales?

b.	What amount of unit sales and dollar sales is required to earn an annual profit of $72,150? (Do not round intermediate calculations.) sales level in units? sales level in dollars?

c.

Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.80 per unit. What is the companys new break-even point in unit sales and in dollar sales? (Do not round intermediate calculations. Round up break even point answers to the nearest whole number.) new break even point in unit sales? new break even point in dollar sales?