Question

In: Accounting

Mauro Products distributes a single product, a scarf; its selling price is $15 and its variable cost is $12 per unit. The company's monthly fixed expense is $4,200.

Mauro Products distributes a single product, a scarf; its selling price is $15 and its variable cost is $12 per unit. The company's monthly fixed expense is $4,200. 

 

Required:

1. Solve for the company's break-even point in unit sales.

2. Solve for the company's break-even point in sales dollars.

3. If Mauro Products decides to drop it~ selling price to $14 with no change to the variable cost per unit or fixed expenses, what will be the new break-even point in unit sales?

Solutions

Expert Solution

1. Using the formula method:

Break-even point in units sold = Fixed expenses ÷ Unit CM

Break-even point in units sold = $4,200 ÷ $3 per scarf

Break-even point in units sold = 1,400 scarfs

 

2. Using the formula method:

Break-even point in sales dollars = Fixed expenses ÷ CM ratio

Break-even point in sales dollars = $4,200 ÷ 0.20

Break-even point in sales dollars =$21,000

 

3.

Break-even point in units sold = Fixed expenses ÷ Unit CM

Break-even point in units sold = $4,200 ÷ $2 per scarf

Break-even point in units sold = 2,100 scarfs

Break-even point in units sold = 1,400 scarfs

Break-even point in sales dollars =$21,000

Break-even point in units sold = 2,100 scarfs

Renze Joy Candido answered 2 years ago
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