The company's break-even point in sales dollars using the equation method and the CM ratio is $21,000
Using the equation method, we can calculate the break-even sales in dollars using the given information:
The price per unit is $15.
The variable unit cost is $12.
0.80 ($12 / $15) is the variable cost ratio.
The contribution margin (CM) ratio equals one minus the variable cost ratio.
The fixed monthly cost is $4,200.
The formula can be written down.
Bep = F / (1 - Vr)
Where S is the sales volume
P = unit sales price
Vr stands for variable cost ratio.
F stands for a fixed cost.
And Bep is break-even point.
When the values are entered into the equation, the following results are obtained:
Bep = F / (1 - Vr)
Bep = 4,200 / (1 - 0.80)
Bep = 4,200 / 0.20
Bep = $21,000
Hence, Using the equation method and the CM ratio, the company's break-even point in dollar sales is $21,000.
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