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 $34.00 per unit and has a CM ratio of 39%. The companys fixed expenses are $145,860 per year. The company plans to sell 12,000 units this year.

Required:

1.

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

Variable expenses

$20.74

per unit

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	11,000
Break-even point in dollar sales	$374,000

b.

What amount of unit sales and dollar sales is required to earn an annual profit of $66,300? (Do not round intermediate calculations.)

Sales level in units	16,000
Sales level in dollars	$544,000

c.

Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.10 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	8,916
New break-even point in dollar sales	$303,138

3.	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 $66,300? (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 $3.10 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