Question

Mauro Products distributes a single product, a woven basket whose selling price is $28 per unit and whose variable expense is $20 per unit. The company’s monthly fixed expense is $20,800. 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. 2600 units

2. $72,800

3. 2,675 units

4. $74,900

Explanation:

Provided,

Sales price per unit = $28

Variable cost per unit = $20

Thus, Contribution per unit = Sales price - variable cost = $28 - $20 = $8

Contribution as percentage = $\frac{8}{28} \times 100 = 28.57$

Fixed Cost = $20,800

1. Break even point in unit sales  = $\frac{Fixed\ Cost}{Contribution\ per\ unit}$ = $\frac{20,800}{8} = 2,600\ units$

2. Break even point in dollars = Break even point in units $\times$ sales price per unit

= 2,600 $\times$ $28 = $72,800

Or straight break even point in dollars = $\frac{Fixed\ cost}{Contribution\ percentage} = \frac{20,800}{0.2857} = 72,800\ dollars$

3. In case fixed cost increase by $600

New fixed cost = $20,800 + $600 = $21,400

Thus, break even point in units shall be = $\frac{21,400}{8} = 2,675\ units$

4. Break even point in sales = $\frac{21,400}{0.2857} = 74,900\ dollars$