Question

Mauro Products distributes a single product, a woven basket whose selling price is $16 per unit and whose variable expense is $12 per unit. The company’s monthly fixed expense is $9,200. 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?

Answer 1

1. 2,300 units

2. $36,800

3. $39,200

Step-by-step explanation:

The computation of company’s break-even point in unit sales is shown below:-

Break Even Point (Unit Sales) = Fixed Cost ÷ Contribution Margin Per Unit

= Fixed Cost ÷ (Sales Price Per Unit - Variable Expense Per Unit)

= $9,200 ÷ ($16 - $12)

= $9,200 ÷ $4

= 2,300 units

2. The computation of break-even point in dollar sales is shown below:-

Break Even Point (Dollar Sales) = Break Even Units × Selling Price Per Unit

= $2,300 × $16

= $36,800

Contribution Margin Ratio = (Sales Price Per Unit - Variable Expense Per Unit ) ÷ Sales Per Unit × 100)

= ($16 - $12) ÷ $16 × 100

= $4 ÷ $16 × 100

= 25%

Break Even Sales = Fixed Expenses ÷ Contribution Margin Ratio

= $9,200 ÷ 25%

= $36,800

3. The computation of new break-even point in unit sales is shown below:-

Break Even Point (Unit Sales) = Fixed Cost ÷ Contribution Margin Per Unit

= Fixed Cost ÷ (Sales Price Per Unit - Variable Expense Per Unit)

= ($9,200 + $600) ÷ ($16 - $12)

= $9,800 ÷ $4

= 2,450 units

Break Even Point (Dollar Sales) = Break Even Units × Selling Price Per Unit

= 2,450 units × $16

= $39,200