Exercise 5-6 Break-Even Analysis [LO5-5] Mauro Products distributes a single pro

Question

Exercise 5-6 Break-Even Analysis [LO5-5]

Mauro Products distributes a single product, a woven basket whose selling price is $20 per unit and whose variable expense is $16 per unit. The company’s monthly fixed expense is $11,200.

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

Explanation / Answer

1. Break-even point in unit sales = Fixed costs / (Unit selling price - Unit variable cost) = $11,200 / ($20 - $16) = 2,800 baskets

2. Contribution margin ratio = $4 / $20 = 0.20 or 20%

Break-even point in dollar sales = Fixed costs / Contribution margin ratio = $11,200 / 0.20 = $56,000

3. Break-even point in unit sales = Fixed costs / (Unit selling price - Unit variable cost) = ($11,200 + $600) / ($20 - $16) = 2,950 baskets

Break-even point in dollar sales = Fixed costs / Contribution margin ratio = ($11,200 + $600) / 0.20 = $59,000

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