Question

Mauro Products distributes a single product, a woven basket whose selling price is $27 per unit and whose variable expense is $21 per unit. The company’s monthly fixed expense is $7,800.

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.)

	1. Break-even point in unit sales baskets 2. Break-even point in dollar sales 3. Break-even point in unit sales baskets 4 Break-even point in dollar sales

Answer 1

The correct answer is

1	Break-even point in unit sales	1,300	baskets
2	Break-even point in dollar sales	35,100
3	Break-even point in unit sales	1,400	baskets
4	Break-even point in dollar sales	37,800

Notes:

1. Break Even point in Unit sales = Fixed Cost / Contribution Margin Per Unit

= Fixed Cost / ( Selling Price Per unit - Variable Cost Per Unit)

= $ 7,800 / ( $ 27 - $ 21)

= 1,300 Baskets

2. Break Even point in Dollars = Fixed Cost / Contribution Margin ratio

= Fixed Cost / [ ( Selling Price Per unit - Variable Cost Per Unit) / Selling Price Per unit]

= $ 7,800 / [( $ 27 - $ 21) / $ 27]

= $ 35,100

3. Break Even point in Unit sales = Fixed Cost / Contribution Margin Per Unit

= Fixed Cost / ( Selling Price Per unit - Variable Cost Per Unit)

=( $ 7,800+$ 600) / ( $ 27 - $ 21)

= 1,400 Baskets

4.Break Even point in Dollars = Fixed Cost / Contribution Margin ratio

= Fixed Cost / [ ( Selling Price Per unit - Variable Cost Per Unit) / Selling Price Per unit]

= $ 8400/ [( $ 27 - $ 21) / $ 27]

= $ 37,800