Question

Mauro Products distributes a single product, a woven basket whose selling price is $12 per unit and whose variable expense is $9 per unit. The company’s monthly fixed expense is $5,100.

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

Answer:

1. Calculate the company’s break-even point in unit sales.

Break-even point in unit sales

1,700

2. Calculate the company’s break-even point in dollar sales.

Break-even point in dollar sales

20,400

3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales?

Break even point in unit sales	1,900
Break even point in dollar sales	22,800

Calculation:

1.

Here we need to calculate the company’s break-even point in unit sales. To calculate the company’s break-even point in unit sales, we need to divide the fixed expenses with the contribution margin.

The contribution margin is the difference of sales and variable expenses.

Contribution margin = Sales - Variable expenses = 12 - 9 = 3

So, the Break-even point in unit sales =  Fixed expenses ÷ Contribution margin. = 5,100 ÷ 3 = 1,700

2.

Here we need to calculate the company’s break-even point in dollar sales.

First we need to find the CM ratio.

CM ratio = Unit contribution Margin / Unit selling price = 3/12 = 0.25

Then we need to find the break-even point in dollar sales.

Profit = [CM ratio × Sales] − Fixed expenses

$0 = [0.25 × Sales] − $5,100

0.25 × Sales = $5,100

Sales = $5,100 ÷ 0.25

Sales = $20,400

3.

Here we need to calculate the new break-even point in unit sales and In dollar sales, if company's fixed expenses increase by $600.

So, the new fixed expenses = $5,100 + 600 = 5,700

To calculate the company’s break-even point in unit sales, we need to divide the fixed expenses with the contribution margin.

So, the Break-even point in unit sales =  Fixed expenses ÷ Contribution margin. = 5,700 ÷ 3 = 1,900

Here we need to calculate the company’s break-even point in dollar sales.

First we need to find the CM ratio.

CM ratio = Unit contribution Margin / Unit selling price = 3/12 = 0.25

Then we need to find the break-even point in dollar sales.

Profit = [CM ratio × Sales] − Fixed expenses

$0 = [0.25 × Sales] − $5,700

0.25 × Sales = $5,700

Sales = $5,700 ÷ 0.25

Sales = $22,800