Question

Lindon Company is the exclusive distributor for an automotive product that sells for $56.00 per unit and has a contribution margin (CM) ratio of 30%. The company's fixed expenses are $41,000 per month.

A) Calculate the contribution margin per unit.
B) Determine the breakeven point in units.
C) Calculate the breakeven point in sales dollars.
D) Determine the sales level (in dollars) required to achieve a monthly profit of $10,000.
E) Calculate the margin of safety in dollars.

Answer 1

The contribution margin per unit for Lindon Company is $16.80, the breakeven point in units is 2,441, the breakeven point in sales dollars is $136,696, and the sales level required to achieve a $10,000 monthly profit is $9,520,000.

Step-by-step explanation:

Lindon Company, an exclusive distributor of an automotive product, sells a unit for $56.00 and has a CM ratio of 30%. Let's go through each question step-by-step:

1. To calculate the contribution margin per unit: Multiply the selling price by the CM ratio. $56.00 * 30% = $16.80 contribution margin per unit.
2. To determine the breakeven point in units, divide the total fixed expenses by the contribution margin per unit. $41,000 / $16.80 = 2,440.48, rounded to 2,441 units.
3. To calculate the breakeven point in sales dollars, multiply the breakeven point in units by the selling price per unit. 2,441 units * $56.00 = $136,696.
4. Determine the sales level (in dollars) required to achieve a monthly profit of $10,000: First, add the desired profit to the fixed expenses to find the total required sales at the contribution margin. ($41,000 + $10,000) / 30% = $170,000. Then, calculate the required sales level by multiplying the total required sales at the contribution margin by the selling price. $170,000 * $56.00 = $9,520,000.
5. Calculating the margin of safety in dollars: