Question

Mauro Products distributes a single product, a woven basket whose selling price is $12 per unit and whose variable expense is $10 per unit. The company’s monthly fixed expense is $5,000.

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

The breakeven point is a point at which there is no profit and no loss.

This means that revenue = cost so that revenue - cost = 0

We know revenue = Units sold * Selling Price.

Costs include fixed and variable costs. While variable costs is dependent on sales volume, fixed costs are not.

So, total costs = variable cost per unit * Units sold + Fixed costs.

Let the units sold be x

Selling price * x = variable costs* x + fixed cost

Selling price * x - variable costs = fixed costs

(Selling price - variable cost) is also known as contribution.

So, contribution * x = fixed cost

In our case, contribution = 12-10 = 2

Fixed cost = 5000

that gives us 2x = 5000

x = 5000/2 = 2500 units.

1. Breakeven point in units is 2500 units

2. Breakeven point in dollar sales = units * selling price = 2500*12 = $30,000

3. If fixed cost is increased by 600, new fixed cost = 5600

Breakeven point = 5600/2 = 2800 units

Breakeven point in dollar sales = 2800*12= $33,600