Question

Mauro Products distributes a single product, a woven basket whose selling price is $12 per unit and whose variable expense is $10 per unit. The company’s monthly fixed expense is $2,400. 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. 1200 BEPunits
2. $14,400 BEP dollars
3. second scenario

•      1200 BEPunits

• $14,400 BEP dollars

Explanation:

$\frac{Fixed Cost}{contribution margin} = BEPunits$

contribution margin = Sales - Variable Cost

12 - 10 = 2 contribution margin

fixed expenses = 2,400

BEP = 2,400/2 = 1,200 units

Resuming: each unit contributes with $2 dollars therefore it needs to sale  1,200 untis to pay the fixed cost.

units x sales price = sales revenue

1,200 x 12 =  14,400 BEP in Dollars

Also it is posible to get this by using contribution margin ratio

in the BEP formula:

$\frac{Fixed Cost}{Contribution Margin Ratio} = BEPdollars$

contribution margin/sales price = 2/12 = 1/6

fixed cost /contribution margin ratio = 2,400/(1/6) = 14,400

Scenario were fixed cost increase:

increase in fixed/contribution margin + previous BEP = BEPunits

increase in fixed/contribution margin ratio + previous BEP = BEPdollars

600 fixed cost /contribution margin = 600/2 = 300 more units to our prevous 1,200 total of 1,500

600 fixed cost /contribution margin ratio = 600/(1/6) = $3,600 more sales revenue to our prevous 14,400 total of 18,000