Lindon Company is the exclusive distributor for an automotive product that sells for $34.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $193,800 per year. The company plans to sell 21,600 units this year. Required: 1. What are the variable expenses per unit? (Round your "per unit" answer to 2 decimal places.) 2. What is the break-even point in unit sales and in dollar sales? 3. What amount of unit sales and dollar sales is required to attain a target profit of $91,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.40 per unit. What is the company’s new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $91,800?

1. $23.80

2. Break even Point (units) = 19,000 units and Break even Point (dollars) = $646,000

3. Unit sales to attain a target profit = 28,000 units and Dollar sales to attain a target profit = $952,000

4. Break even Point (units) = 28,500 units, Break even Point (dollars) = $969,000 and Dollar sales to attain a target profit = $1,428,000.

Explanation:

Variable Cost % = 100% - 30%

                           = 70%

Thus, variable expenses per unit = $34.00 × 70%

                                                       = $23.80

Break even Point is the level of activity where a firm makes neither a profit nor a loss.

Break even Point (units) = Fixed Cost / Contribution per unit

                                        = $193,800 / ($34.00 ×30%)

                                        = $193,800 / $10.20

                                        = 19,000 units

Break even Point (dollars) = Fixed Cost / CM Ratio

                                           = $193,800 / 0.30

                                           = $646,000

Unit sales to attain a target profit = (Fixed Cost + Target Profit) / Contribution per unit

                                                       = ($193,800 + $91,800) / $10.20

                                                       = 28,000

Dollar sales to attain a target profit = (Fixed Cost + Target Profit) / CM Ratio

                                                       = ($193,800 + $91,800) / 0.30

                                                       = $952,000

When variable expenses reduce by $3.40 per unit.

Break even Point (units) = Fixed Cost / Contribution per unit

                                        = $193,800 / ($34.00 - $23.80 - $3.40 )

                                        = $193,800 / $6.80

                                        = 28,500 units

Break even Point (dollars) = Fixed Cost / CM Ratio

                                           = $193,800 / ($6.80/ $34.00)

                                           = $969,000

Dollar sales to attain a target profit = (Fixed Cost + Target Profit) / CM Ratio

                                                       = ($193,800 + $91,800) / 0.20

                                                       = $1,428,000

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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