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 fi xed expenses are $180,000 per year. The company plans to sell 16,000 units this year. Required: 1. What are the variable expenses per unit? 2. Using the equation method: a. What is the break-even point in units and sales dollars? b. What sales level in units and in sales dollars is required to earn an annual profi t of $60,000? c. Assume that by using a more effi cient shipper, the company is able to reduce its variable expenses by $4 per unit. What is the company’s new break-even point in units and sales dollars? 3. Repeat (2) above using the formula method
EXERCISE 6–13 Target Profi t and Break-Even Analysis [ LO3 , LO4 , LO5 , LO6 ]
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 fi xed expenses are $180,000 per year. The company
plans to sell 16,000 units this year.
Required:
1. What are the variable expenses per unit?
2. Using the equation method:
a. What is the break-even point in units and sales dollars?
b. What sales level in units and in sales dollars is required to earn an annual profi t of
$60,000?
c. Assume that by using a more effi cient shipper, the company is able to reduce its variable
expenses by $4 per unit. What is the company’s new break-even point in units and sales
dollars?
3. Repeat (2) above using the formula method
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