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 automotiveproduct that sells for $37.00 per unit and has a CM ratio of 39%.The company’s fixed expenses are $432,900 per year. The companyplans to sell 31,000 units this year.

Required:

1.		What are the variable expenses per unit? (Round youranswer 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 earnan annual profit of $72,150? (Do not round intermediatecalculations.) sales level in units? sales level in dollars?

c.

Assume that by using a more efficient shipper, the company isable to reduce its variable expenses by $4.80 per unit. What is thecompany’s new break-even point in unit sales and in dollar sales?(Do not round intermediate calculations. Round up breakeven 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 formulamethod.

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 earnan annual profit of $72,150? (Do not round intermediatecalculations.) sales level in units? sales level in dollars?

c.

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