Question

Mauro Products distributes a single product, a woven basket whose selling price is $19 per unit and whose variable expense is $17 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

Solution:

1. 1400 units

2. $26,600

3. 1700 units and

3. $32,300

Explanation:

Selling price =$19 per unit

Variable expenses = $17 per unit

Contribution margin per unit = 19 -17 = 2

Fixed expense = $2,800

1.

Break even point in units = Fixed cost / Contribution margin per unit = 2800 /2 = 1400 units

2.

Break even in dollars = Break even point in units x selling price per unit = 1400 x 19 = $26,600

3.

Fixed expenses increased by $600

Then total fixed expenses = 2800 + 600 = $3400

Break even point in units = 3400 / 2 = 1700 units

Break even in dollars = 1700 x 19 = $32,300