Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows: Sales $ 36,000,000 Operating expenses: Variable expenses $ 19,800,000 Fixed expenses 8,100,000 Total expenses 27,900,000 Operating profit $ 8,100,000 Required: 1. Determine the breakeven point in sales dollars. 2. Determine the required sales in dollars to earn a before-tax profit of $9,135,000. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 3. What is the breakeven point in sales dollars if the variable expenses increases by 9%

Lawn Master Company

1. Break-even point in sales dollars:

= $18,000,000

2. Required sales in dollars to earn a before-tax profit of $9,135,000:

= $38,300,000

3. The break-even point in sales dollars if the variable expenses increases by 9%:

= $20,224,719

Explanation:

a) Data and Calculations:

Sales                            $ 36,000,000

Operating expenses:

Variable expenses       $ 19,800,000

Contribution margin     $16,200,000

Fixed expenses                 8,100,000

Total expenses               27,900,000

Operating profit             $ 8,100,000

Contribution margin ratio = $16,200,000/$36,000,000 * 100 = 45%

Break-even point in sales dollars = Fixed cost/Contribution margin

= $8,100,000/0.45 = $18,000,000

Break-even point in sales dollars to earn a before-tax profit of $9,135,000

= (Fixed cost + target profit)/Contribution margin ratio

= ($8,100,000 + $9,135,000)/0.45

= $17,235,000/0.45

= $38,300,000

Break-even point in sales dollars if the variable expenses increase by 9%

Increased variable expenses = $21,582,000 ($ 19,800,000 * 1.09)

Contribution margin will reduce to $14,418,000 ($36,000,000 - $21,582,000)

Contribution margin ratio = $14,418,000/$36,000,000 * 100 = 0.4005

Therefore, break-even point in sales dollars = Fixed cost/0.4005

= $8,100,000/0.4005

= $20,224,719

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