Missing part of Question
Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%. The company’s fixed expenses are $180,000 per year. The company plans to sell 16,000 units this year
Answer:
1. Variable Expenses per Unit = $28
2. Units Sales = 15,000; Dollar Sales = $600,000
3. Unit Sales = 20,000; Dollar Sales = $800,000 units
4. Unit Sales = 11,250 units
Dollar Sales = $450,000
Explanation:
1. The Variable Expenses per unit
This is calculated as follows;
$40 * (100% - 30%)
= $40 *70%
= $28
2. Break-even point in unit sales and in dollar sales is calculated as follows;
For unit sales;
Using the following formula
Profit = Unit CM * Q - Fixed Expenses
Where Profit = $0
Unit CM = $40 - $28 = $12
Q = Unit Sales
Fixed Expenses = $180,000.
So, we have
$0 = $12 * Q - $180,000
$12Q = $180,000
Q = $180,000/$12
Q = 15,000 units
For Dollar sales
Dollar Sales = 15,000 units * $40 per unit
Dollar Sales = $600,000
3. What amount of unit sales and dollar sales is required to attain a target profit of $60,000 per year?
Here Profit = $60,000
Using
Profit = Unit CM * Q - Fixed Expenses
We have
$60,000 = $12Q - $180,000
$12Q = ,$180,000 + $60,000
$12Q = $240,000
Q = $240,000/$12
Q = 20,000 units
Dollar Sales = 20,000 units * $40 per units
Dollar Sales = $800,000 units
4.
Using Profit = Unit CM * Q - Fixed Expenses
Here,
Profit = $0
Unit CM = $40 - $28 + $4 = $16
Fixed Expenses = $180,000
So, we have
$0 = $16Q - $180,000
$16Q = $180,000
Q = $180,000/$16
Q = 11,250 units
Dollar sales. = 11,250 units * $40 per unit
Dollar Sales = $450,000
Answer:
1. $282
2i$600,000 in dollar sales
ii$15,000 in units sales
3i. $800,000 in dollars sales
ii $20,000 in units sales
4i$450,000 in dollars sales
ii $11,250 in units sales
Explanation:
1.
Variable expenses: $40 × (100% – 30%) = $282
2i. Selling price$40 100%
Variable expenses28 70%
Contribution margin$12 30%
Profit = Unit CM × Q − Fixed expenses
$0= $12 × Q − $180,000
$12Q= $180,000
Q= $180,000 ÷ $12
Q= 15,000 units
In dollar sales: 15,000 units × $40 per unit = $600,000
2ii
In unit sales
Profit = CM ratio × Sales − Fixed expenses $0= 0.30 × Sales − $180,000
30 × Sales= $180,000
Sales= $180,000 ÷ 0.30
Sales= $600,000
In unit sales: $600,000 ÷ $40 per unit = 15,000 units
3i
Profit= Unit CM × Q − Fixed expenses $60,000= $12 × Q − $180,000
$12Q= $60,000 + $180,000
$12Q= $240,000
Q= $240,000 ÷ $12Q= 20,000 units
In dollar sales: 20,000 units × $40 per unit = $800,000
3ii
In units sales
Profit = CM ratio × Sales − Fixed expenses $60,000= 0.30 × Sales − $180,000
0.30 × Sales= $240,000
Sales= $240,000 ÷ 0.30
Sales= $800,000
In unit sales: $800,000 ÷ $40 per unit = 20,000 units
4i.
Selling price$40 100%
Variable expenses ($28 – $4)24 60%
Contribution margin$1640%
Profit= Unit CM × Q − Fixed expenses
$0= ($40 − $24) × Q − $180,000
$16Q= $180,000
Q= $180,000 ÷ $16 per unit
Q= 11,250 units
In dollar sales: 11,250 units × $40 per unit = $450,000
4ii
In units sales
Profit = CM ratio × Sales − Fixed expenses $0= 0.40 × Sales − $180,000
0.40 × Sales= $180,000
Sales= $180,000 ÷ 0.40
Sales= $450,000
In unit sales: $450,000 ÷ $40 per unit = 11,250 units
