Question

Mauro Products distributes a single product, a woven basket whose selling price is $14 and whose variable expense is $11.76 per unit. The company’s monthly fixed expense is $2,240.

Required:
1.	Solve for the company’s break-even point in unit sales using the equation method. (Do not round your intermediate calculations.)

      

2.	Solve for the company’s break-even point in dollar sales using the equation method and the CM ratio.(Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)

      

3.	Solve for the company’s break-even point in unit sales using the formula method. (Do not round your intermediate calculations.)

      

4.	Solve for the company’s break-even point in dollar sales using the formula method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)

     

Answer 1

Answer:- 1)-Breakeven units :-

Using equation method:-

px = vx + FC + Profit

Where,
p= price per unit,
x = number of units,
v= variable cost per unit

FC = Total fixed cost.

At break-even point the profit is zero therefore the CVP formula is simplified to:

px = vx + FC

Solving the above equation for x which equals break-even point in sales units:-

Break-even Sales units=x=FC/p-v

         

Break-even Sales units=x =$2240/$14 per unit-$11.76 per unit

                                             =$2240/$2.24 per unit =1000 units

2)-BEP in sales dollars =Price per unit*Break even sales units

=$14 per unit*1000 units = $14000

Contribution margin ratio= (Contribution margin per unit /Selling price per unit)*100

                                           =($2.24 per unit/$14 per unit)*100

                                           = 16%

3)-Using formula method:-

Break-even point in unit sales = Fixed cost/Contribution per unit

                                                       =2240/$2.24 per unit= 1000 units

                                                       

                                         

4)-Break even point sales in dollars = Fixed cost/Contribution margin ratio

                                                         =2240/16% =$14000

       

Contribution margin ratio= (Contribution margin per unit /Selling price per unit)*100

                                           =($2.24 per unit/$14 per unit)*100

                                           = 16%

Where:-

Contribution margin per unit=Selling price per unit-Variable cost per unit

=$14 per unit-$11.76 per unit

=$2.24 per unit