Question

Mauro Products distributes a single product, a woven basket whose selling price is $12 and whose variable expense is $10.68 per unit. The company’s monthly fixed expense is $3,168.

Required:

1. Solve for the company’s break-even point in unit sales using the equation method. (Do not round your intermediate calculations.)

2. Solve for the company’s break-even point in dollar sales using the equation method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)

3. Solve for the company’s break-even point in unit sales using the formula method. (Do not round your intermediate calculations.)

4. Solve for the company’s break-even point in dollar sales using the formula method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)

Answer 1

1. Solve for the company’s break-even point in unit sales using the equation method. (Do not round your intermediate calculations.)

Answer:

Break-even point in unit sales using the equation method = 2,400 baskets

Calculation:

Here, we need to calculate the break-even point in unit sales using equation method. The equation is:

Profit = (Unit CM * Q) - Fixed Expenses

So, the calculation will be:

$0 = (($12 - $10.68) * Q) - $3,168

$0 = ($1.32Q) - $3,168

$1.32Q = $3,168

= $3,168 ÷ $1.32Q

= 2,400 baskets

2. Solve for the company’s break-even point in dollar sales using the equation method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)

Answer:

Break-even point in dollar sales using the equation method = $ 28,800

Calculation:

Here, we need to calculate the break-even point in dollar sales using equation method and CM ratio.

So, first we need to calculate the CM ratio

CM ratio = Unit CM ÷ Unit Selling Price

CM ratio = $1.32 ÷ $12

CM ratio = 11%

The equation is:

Profit = (CM ratio * Sales) - Fixed Expenses

So, the calculation will be:

$0 = (11% * Sales) - $3,168

11% * Sales = $3,168

Sales = $3,168 ÷ 11%

Sales = $28,800

3. Solve for the company’s break-even point in unit sales using the formula method. (Do not round your intermediate calculations.)

Answer:

Break-even point in unit sales using the formula method = 2,400 baskets

Calculation:

Here, we need to calculate the break-even point in unit sales using formula method.

The formula is:

Unit sales to break even = Fixed Expenses ÷ Unit CM

Input the values to the formula, then calculation will be:

Unit sales to break even = $3,168 ÷ $1.32

Unit sales to break even = 2,400 baskets

4. Solve for the company’s break-even point in dollar sales using the formula method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)

Answer:

Break-even point in dollar sales using the formula method and the CM ratio = 28,800

Calculation:

Here, we need to calculate the break-even point in dollar sales using formula method.

For that first we need to calculate the CM ratio.

CM ratio = Unit CM ÷ Unit Selling Price

CM ratio = $1.32 ÷ $12

CM ratio = 11%

The formula is:

Dollars to break even = Fixed Expenses ÷ CM ratio

Input the values to the formula, then calculation will be:

Dollars to break even = $3,168 ÷ 11%

Dollars to break even = $28,800