Question

Mauro Products distributes a single product, a woven basket whose selling price is $12 per unit and whose variable expense is $9 per unit. The company’s monthly fixed expense is $6,300. 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. 2,100 units

2. $25,200

3. 2,300 units and $27,600

Explanation:

The break-even point is the level of sales at which the business incur no profit no loss.Fixed and variable costs are covered at this level of sales.

Contribution Margin = Sale price - variable cost = $12 - $9 = $3

Contribution Margin ratio= Contribution Margin / Sale price = $3 / $12 = 25%

1.

Break-even point = Fixed cost / Contribution margin = $6,300 / $3 = 2,100

2.

Break-even point = Fixed cost / Contribution margin ratio = $6,300 / 25% = $25,200

3.

Fixed Cost = $6,300 + $600 = $6,900

Break-even point = Fixed cost / Contribution margin = $6,900 / $3 = 2,300 units

Break-even point = Fixed cost / Contribution margin ratio = $6,900 / 25% = $27,600