Question

Mauro Products distributes a single product, a woven basket whose selling price is $16 per unit and whose variable expense is $14 per unit. The company’s monthly fixed expense is $2,800.

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

Answer 1

1. Contribution margin per unit = $16 - $14 = $2 per unit

Break-even point in unit sales = Fixed expenses / Contribution margin per unit = $2,800 / $2 = 1,400 units

2. Contribution margin ratio = $2 / $16 = 12.5%

Break-even point in dollar sales = Fixed expenses / Contribution margin ratio = $2,800 / 12.5% = $22,400

3. New break-even point in unit sales = Fixed expenses / Contribution margin per unit = ($2,800 + $600) / $2 = 1,700 units

New break-even point in dollar sales = Fixed expenses / Contribution margin ratio = ($2,800 + $600) / 12.5% = $27,200