Q1: Mauro Products distributes a single product, a woven basket whose selling price is

$15 per unit and whose variable expense is $12 per unit. The company's monthly fixed
expense is $4,200.

Required:

1. Calculate the company's break-even point in unit sales.

2. Calculate the company's break-even point in dollar sales.

3. If the company's fixed expenses increase by $600, what would become the new
break-even point in unit sales? In dollar sales?

ANS To calculate the break-even point in unit sales and dollar sales, you can use the following formulas:

Break-even Point in Unit Sales:

Break-even Point (in units) = Fixed Expenses / (Selling Price per Unit - Variable Expense per Unit)

Break-even Point in Dollar Sales:

Break-even Point (in dollars) = Fixed Expenses / (1 - (Variable Expense per Unit / Selling Price per Unit))

Let's calculate these values step by step:

Given:

Selling Price per Unit = $15

Variable Expense per Unit = $12

Fixed Expenses = $4,200

Calculate the break-even point in unit sales:

Break-even Point (in units) = $4,200 / ($15 - $12) = $4,200 / $3 = 1,400 units

Calculate the break-even point in dollar sales:

Break-even Point (in dollars) = $4,200 / (1 - ($12 / $15)) = $4,200 / (1 - 0.8) = $4,200 / 0.2 = $21,000

Now, let's calculate the new break-even point if fixed expenses increase by $600:

New Fixed Expenses = $4,200 + $600 = $4,800

Calculate the new break-even point in unit sales:

New Break-even Point (in units) = $4,800 / ($15 - $12) = $4,800 / $3 = 1,600 units

Calculate the new break-even point in dollar sales:

New Break-even Point (in dollars) = $4,800 / (1 - ($12 / $15)) = $4,800 / (1 - 0.8) = $4,800 / 0.2 = $24,000

So, the new break-even point in unit sales would be 1,600 units, and the new break-even point in
dollar sales would be $24,000 if the company's fixed expenses increase by $600.

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 Q2: Lin Corporation has a single product whose selling price is $120 per unit and
whose variable expense is $80 per unit. The company's monthly fixed expense is
$50,000.

Required:

1. Calculate the unit sales needed to attain a target profit of $10,000.

2. Calculate the dollar sales needed to attain a target profit of $15,000.

ANS To calculate the unit sales needed to attain a target profit and the dollar sales needed to attain a target profit,
you can use the following formulas:

Unit Sales Needed (Q) = (Fixed Expenses + Target Profit) / (Selling Price - Variable Expense)

Dollar Sales Needed (D) = Unit Sales Needed (Q) * Selling Price

Given the information provided:

Selling Price (SP) = $120 per unit

Variable Expense (VE) = $80 per unit

Fixed Expenses (FE) = $50,000

Target Profit (TP):

For a target profit of $10,000:

TP1 = $10,000

For a target profit of $15,000:

TP2 = $15,000

Now, let's calculate the unit sales and dollar sales for each target profit:

For a target profit of $10,000:

Unit Sales Needed (Q1) = ($50,000 + $10,000) / ($120 - $80) = $60,000 / $40 = 1,500 units

Dollar Sales Needed (D1) = Unit Sales Needed (Q1) * Selling Price = 1,500 units * $120 per unit = $180,000

For a target profit of $15,000:

Unit Sales Needed (Q2) = ($50,000 + $15,000) / ($120 - $80) = $65,000 / $40 = 1,625 units

Dollar Sales Needed (D2) = Unit Sales Needed (Q2) * Selling Price = 1,625 units * $120 per unit = $195,000

So, to attain a target profit of $10,000, Lin Corporation needs to sell 1,500 units, resulting in $180,000
in sales. To attain a target profit of $15,000, they need to sell 1,625 units, resulting in $195,000 in
sales.

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Q3: 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.

Required:

1. What are the variable expenses per unit?

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 $60,000
per year?

ANS We can use the Contribution Margin (CM) ratio, which is the percentage of each sales dollar available to cover
fixed expenses and contribute to profit. The CM ratio is calculated as follows:

CM Ratio = (Sales - Variable Expenses) / Sales

We are given:

Sales price per unit = $40

CM ratio = 30%

Fixed expenses = $180,000

Planned unit sales = 16,000

Target profit = $60,000

Let's calculate the answers to each question:

Variable Expenses per Unit:

CM Ratio = (Sales - Variable Expenses) / Sales

30% = ($40 - Variable Expenses) / $40

Now, let's solve for Variable Expenses:

30% * $40 = $40 - Variable Expenses

Variable Expenses = $40 - (0.30 * $40)

Variable Expenses = $40 - $12

Variable Expenses = $28 per unit

Break-Even Point:

The break-even point is the point at which total contribution margin equals total fixed expenses. We can
calculate the break-even point in unit sales and in dollar sales.

Break-Even Point in Unit Sales:

Break-Even Point (units) = Fixed Expenses / CM per unit

Break-Even Point (units) = $180,000 / $28 per unit

Break-Even Point (units) ≈ 6,428.57 units

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Since you can't sell a fraction of a unit, you'll need to sell at least 6,429 units to cover your fixed expenses.

Break-Even Point in Dollar Sales:

Break-Even Point (sales) = Break-Even Point (units) * Sales price per unit

Break-Even Point (sales) ≈ 6,429 units * $40 per unit

Break-Even Point (sales) ≈ $257,160

Target Profit:

To calculate the number of units and dollar sales needed to attain a target profit of $60,000, we can use the
following formulas:

Target Profit (units) = (Fixed Expenses + Target Profit) / CM per unit

Target Profit (units) = ($180,000 + $60,000) / $28 per unit

Target Profit (units) ≈ 10,000 units

Target Profit (sales) = Target Profit (units) * Sales price per unit

Target Profit (sales) ≈ 10,000 units * $40 per unit

Target Profit (sales) ≈ $400,000

So, to attain a target profit of $60,000, Lindon Company needs to sell approximately 10,000 units,
resulting in dollar sales of around $400,000.

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4. 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 unit sales and in dollar
sales? What dollar sales is required to attain a target profit of $60,000?

To calculate the new break-even point in unit sales and in dollar sales after reducing variable expenses by $4 per
ANS unit, and to find the dollar sales required to attain a target profit of $60,000, we can use the following formulas:

Break-even point in unit sales (BEU):

BEU = Fixed Costs / (Selling Price per Unit - Variable Expenses per Unit.

Break-even point in dollar sales (BED):

BED = BEU * Selling Price per Unit

Dollar sales required to attain a target profit:

Required Dollar Sales = (Fixed Costs + Target Profit) / [(Selling Price per Unit - Variable Expenses per Unit)]

Let's assume the following information:

Fixed Costs = $200,000

Selling Price per Unit = $20

Original Variable Expenses per Unit = $10

Reduction in Variable Expenses per Unit = $4

Target Profit = $60,000

We can now calculate the new break-even point and the dollar sales required to attain the target profit:

New Variable Expenses per Unit:

New Variable Expenses per Unit = Original Variable Expenses per Unit - Reduction in Variable Expenses per Unit

New Variable Expenses per Unit = $10 - $4 = $6

Calculate the new break-even point in unit sales (BEU):

BEU = $200,000 / ($20 - $6)

BEU = $200,000 / $14

BEU = 14,285.71 (rounded to the nearest whole unit)

Calculate the new break-even point in dollar sales (BED):

BED = BEU * Selling Price per Unit

BED = 14,285.71 * $20

BED = $285,714.29 (rounded to the nearest dollar)

Calculate the dollar sales required to attain a target profit of $60,000:

Required Dollar Sales = ($200,000 + $60,000) / ($20 - $6)

Required Dollar Sales = $260,000 / $14

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Required Dollar Sales = $18,571.43 (rounded to the nearest dollar)
Required Dollar Sales = $260,000 / $14

Required Dollar Sales = $18,571.43 (rounded to the nearest dollar)

So, the new break-even point in unit sales is approximately 14,286 units, and the new
break-even point in dollar sales is approximately $285,714.29. To attain a target profit
of $60,000, the company will need to achieve dollar sales of approximately $18,571.43.

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