Mauro Products distributes a single product, a woven basket whose selling price

Question

Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200. Required 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales. 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales? 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) = $4,200 / ($15 - $12) = 1,400 baskets

2. Contribution margin ratio = $3 / $15 = 0.20 or 20%

3. Break-even point in unit sales = Fixed costs / (Unit selling price - Unit variable cost) = ($4,200 + $600) / ($15 - $12) = 1,600 baskets

Break-even point in dollar sales = Fixed costs / Contribution margin ratio = ($4,200 + $600) / 0.20 = $24,000

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