Question

Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $12 per unit. The company’s monthly fixed expense is $4,200. Required: 1. Calculate the company’s break-even point in unit sales. 2. Calculate the company’s break-even point in dollar sales. 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar

Answer 1

Explanation:

The computation is as follows

1. For break even point in unit sales

= (Fixed expenses ) ÷ (Contribution margin per unit)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

= ($4,200) ÷ ($15 - $12)

= ($4,200) ÷ ($3)

= 1,400 units

2. For break even point in unit sales

= (Fixed expenses ) ÷ (Contribution margin ratio)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

And, the contribution margin ratio is

= (Contribution margin per unit) ÷ (Selling price per unit)

= ($3) ÷ ($15) × 100

= 20%

Now the break even point in unit sales is

=  ($4,200) ÷ (20%)

= $21,000

3. Now the new break even point in unit sales is

= (Fixed expenses ) ÷ (Contribution margin per unit)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

= ($4,800) ÷ ($15 - $12)

= ($4,800) ÷ ($3)

= 1,600 units

And, the break even point in unit sales

= (Fixed expenses ) ÷ (Contribution margin ratio)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

And, the contribution margin ratio is

= (Contribution margin per unit) ÷ (Selling price per unit)

= ($3) ÷ ($15) × 100

= 20%

Now the break even point in unit sales is

=  ($4,800) ÷ (20%)

= $24,000