Answer the finance questions.
1. Lindon Company is the exclusive distributor for an automotive product selling for $44.00 per unit with a CM ratio of 30%. The company’s fixed expenses are $283,800 per year and it plans to sell 25,100 units this year.
Required:
- What are the variable expenses per unit?Note: Round your “per unit” answer to 2 decimal places.
- What is the break-even point in unit sales and in dollar sales?
- What amount of unit sales and dollar sales is required to attain a target profit of $151,800 per year?
- Assume by using a more efficient shipper, the company can reduce its variable expenses by $4.40 per unit. What is the company’s new break-even point in unit sales and dollar sales? What dollar sales are required to attain a target profit of $151,800?
2. See attachment. Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
| Total | Per Unit | |
|---|---|---|
| Sales | $ 612,000 | $ 40 |
| Variable expenses | 428,400 | 28 |
| Contribution margin | 183,600 | $ 12 |
| Fixed expenses | 145,200 | |
| Net operating income | $ 38,400 |
Required:
1. What is the monthly break-even point in unit sales and in dollar sales?
2. Without resorting to computations, what is the total contribution margin at the break-even point?
3-a. How many units would have to be sold each month to attain a target profit of $76,800?
3-b. Verify your answer by preparing a contribution format income statement at the target sales level.
4. Refer to the original data. Compute the company’s margin of safety in dollar and percentage terms.
5. What is the company’s CM ratio? If the company can sell more units, thereby increasing sales by $83,000 per month, and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
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