1 answer

Lindon Company is the exclusive distributor for an automotive product that sells for $56.00 per unit...

Question:

Lindon Company is the exclusive distributor for an automotive product that sells for $56.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $411,600 per year. The company plans to sell 29,300 units this year.

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.60 per unit. What is the company’s new break-even point in unit sales and in dollar sales?


Answers

The break-even point (in unit) = Fixed expense / Contribution margin p.u.

= $411,600 / $22.40 P.u.

= 18,375 units

Where,

Contribution margin p.u. = Selling price p.u. - Variable cost p.u.

= $56 -$33.60

= $22.40

Vraible cost p.u. = (Sales * 70%) - reduction in variable cost

= ($56 * 70%) - $5.60

= $39.20 - $5.60

= $33.60

Note: if contribution margin is 30% of sales than variable cost is 70% of sales.

Break-even point (in dollar) = Fixed expense / contribution margin ratio

= $411,600 / 40%

= $1,029,000

New contribution margin ratio = Contribution margin p.u. / Net sales * 100

= $22.40 / $56 * 100

= 40%

If it is helpful please rate the answer.

Thank you!!!

.

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