Question

Lindon Company is the exclusive distributor for an automotive product that sells for $28.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $147,000 per year. The company plans to sell 19,500 units this year.

Required: What are the variable expenses per unit?

Answer 1

To calculate the variable expenses per unit for Lindon Company, which has a Contribution Margin ratio of 30% and a selling price of $28.00 per unit, subtract 30% of the selling price from the selling price itself, resulting in $19.60 per unit.

Step-by-step explanation:

The question requires us to calculate the variable expenses per unit for Lindon Company. Given that the company has a Contribution Margin (CM) ratio of 30% and sells its automotive product for $28.00 per unit, the variable cost per unit can be found by subtracting the product's contribution margin from its selling price. Since the CM ratio is essentially the product's selling price minus variable costs, represented as a percentage of the selling price, we use the formula: Variable Cost per Unit = Selling Price per Unit - (CM Ratio * Selling Price per Unit).

Thus, Variable Cost per Unit = $28.00 - (30% * $28.00) = $28.00 - $8.40 = $19.60.