Question

Mauro Products distributes a single product, a woven basket whose selling price is $24 per unit and whose variable expense is $18 per unit. The company’s monthly fixed expense is $7,800.

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? (Do not round intermediate calculations.)

Answer 1

Answer-1)- Break-even point in unit sales = 1300 units.

Explanation- Break-even point in unit sales = Fixed costs/Contribution margin per unit

= $7800/$6 per unit

= 1300 units

Where- Contribution margin per unit = Selling price per unit – Variable expenses per unit

= $24 per unit -$18 per unit

= 6 per unit

2)- Break-even point in dollar sales = $31200.

Explanation- Break-even point in unit sales = Fixed costs/Contribution margin ratio

= $7800/25%

= $31200

Where- Contribution margin ratio = (Contribution margin per unit /Selling price per unit )*100

= ($6 per unit/$24 per unit)*100

= 25%

3)- New break-even point in unit sales = Total fixed costs/ Contribution margin per unit

= ($7800+$600)/$6 per unit

= 1400 units

New break-even point in dollar sales = Total fixed costs/ Contribution margin ratio

= ($7800+$600)/25%

= $33600