Question

Mauro Products distributes a single product, a woven basket whose selling price is $25 per unit and whose variable expense is $18 per unit. The company’s monthly fixed expense is $9,100. Required: 1. Calculate the company’s break-even point in unit sales. 2. Calculate the company’s break-even point in dollar sales. (Do not round intermediate calculations.) 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales? (Do not round intermediate calculations.)?

Answer 1

1)

Contribution margin per unit = Selling price - Variable cost

=25 - 18

= $7

Contribution margin ratio = contribution margin/sale per unit

= 7/25

= 28%

Fixed cost = 9,100

Breakeven sales in units = Fixed cost/contribution margin per unit

= 9,100/7

= 1,300 units

2)

Breakeven sales in dollars = Fixed cost/ contribution margin ratio

= 9,100/28%

= $32,500

3)

New fixed cost = 9,100 + 600 = 9,700

Break even sales in units

= 9,700/7

= 1,385.71 units

Breakeven sales in dollars

= 9,700/28%

= $34,642.86

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