Question

Mauro Products distributes a single product, a woven basket whose selling price is $20 and whose variable expense is $16.2 per unit. The company’s monthly fixed expense is $9,880.

Required:
1.	Solve for the company’s break-even point in unit sales using the equation method. (Do not round your intermediate calculations.)

     

2.	Solve for the company’s break-even point in dollar sales using the equation method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)

     

3.	Solve for the company’s break-even point in unit sales using the formula method. (Do not round your intermediate calculations.)

     

4.	Solve for the company’s break-even point in dollar sales using the formula method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)

     

Answer 1

At break even point profit = $0

1.Equation method

Profit = Unit CM* X -Fixed expenses

CM = sales-variable cost

$0 = ($20-$16.2)*X -$9,880

$0 =$3.8X-$9,880

X =2,600 units

company’s break-even point in unit sales using the equation method is 2,600 units

2.Break even point sales dollars

=Price per unit*Break even point in unit

=$20*2,600

=$52,000

3.Formula method

break even point in units = Fixed cost/ contribution margin

Contribution margin = $20-$16.2

=$3.8

$9,880/$3.8

=2,600 units

4. Break even point in sales

=fixed costs/ CM ratio

CM ratio = contribution margin/ sales

$3.8/$20

=19%

Break even point in sale sdollars = $9,880/19%

$52,000