Question

Mauro Products distributes a single product, a woven basket whose selling price is $25 per unit and whose variable expense is $18 per unit. The company’s monthly fixed expense is $14,000. 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

Ans. 1	Break even point in unit sales =   Fixed cost / Contribution margin per unit
	$14,000 / $7
	2,000 units
Ans. 2	Break even point in dollar sales =   Fixed cost / Contribution margin ratio
	$14,000 / 28%
	$50,000
Ans. 3	Increased fixed cost ($14,000 + $600) = $14,600
	Break even point in unit sales =   Fixed cost / Contribution margin per unit
	$14,600 / $7
	2,085.71 units
Ans. 4	Break even point in dollar sales =   Fixed cost / Contribution margin ratio
	$14,600 / 28%
	$52,142.86
	*WORKING NOTES:
	*Calculations of Contribution margin per unit:
		Per unit
	Selling price per unit	$25.00
	Less: Variable cost per unit	-$18.00
	Contribution margin per unit	$7.00
	*Calculations of Contribution margin ratio:
	Contribution margin ratio   = Contribution margin per unit / Selling price * 100
	$7 / $25 * 100
	28%