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.
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 profit of $60,000?
c. Assume that by using a more efficient 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.
This solution, prepared in Excel, gives the students a classic "visual" model of how the contribution margin income statement can help solve these problems. Once the data is organized, it is easier to see what to use in answering the questions posed. Suitable for all levels. No added discussion is presented but all formula are viewable by clicking on the cells.