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

1. 2600 units

2. $72,800

3. 2,675 units

4. $74,900

Step-by-step 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 =
`(8)/(28) * 100 = 28.57`

Fixed Cost = $20,800

1. Break even point in unit sales =
`(Fixed\ Cost)/(Contribution\ per\ unit)` =
`(20,800)/(8) = 2,600\ units`

2. Break even point in dollars = Break even point in units
`*` sales price per unit

= 2,600
`*` $28 = $72,800

Or straight break even point in dollars =
`(Fixed\ cost)/(Contribution\ percentage) = (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 =
`(21,400)/(8) = 2,675\ units`

4. Break even point in sales =
`(21,400)/(0.2857) = 74,900\ dollars`