Question

Lidon Company is the exclusive distributor for an automotive product that sells for $37.00 per unit and has a CM ratio of 39%. The company’s fixed expenses are $259,740 per year. The company plans to sell 19,000 units this year. What are the variable expenses per unit?

Answer 1

To find the variable expenses per unit, you can use the contribution margin ratio (CM ratio) and the given information.

The CM ratio is given as 39%, which means that 39% of the selling price covers variable expenses, and the rest contributes to covering fixed expenses and generating profit.

Let's set up the equation to find the variable expenses per unit:

CM Ratio = (Selling Price - Variable Expenses) / Selling Price

0.39 = ($37.00 - Variable Expenses) / $37.00

Now, let's solve for Variable Expenses:

Variable Expenses = $37.00 - (0.39 * $37.00)

Variable Expenses = $37.00 - $14.43

Variable Expenses = $22.57

So, the variable expenses per unit are $22.57.