Maxson Products distributes a single product, a woven basket whose selling price
ID: 2474522 • Letter: M
Question
Maxson Products distributes a single product, a woven basket whose selling price is $13 and whose variable cost is $9.33 per unit. The company's monthly fixed expense is $6.552. Compute for the company's break-even point in unit sales using the equation method. Compute for the company's break-even point in sales dollars using the equation method and the CM ratio. (Do not round intermediate calculations. Round your CM ratio to 2 decimal places. Omit the "$" sign in your response.) Compute for the company's break-even point in unit sales using the formula method. Compute for the company's break-even point in sales dollars using formula method and the CM ratio. (Do not round intermediate calculations. Round your CM ratio to 2 decimal places. Omit the "$" sign in your response.)Explanation / Answer
1) Sp × Q = Ve × Q + Fe
13 × Q = 9.36 × Q + 6,552
13 Q = 9.36 Q + 6,552
13Q – 9.36Q = 6,552
3.64 Q = 6,552
Q = 1800 units
The break-even point in units is 1800 units and the break-even point in dollars can be computed as follows:
= (1800 units) × 13)
= $23,400
Contribution Margin Ratio = (SP - VC)/SP = ($13 - $9.36)/$13 = 28%
3) BEP in units = Fixed Cost/(Selling Price - variable cost)= $6552/($13 - $9.36) = 1800 units
4) Contribution Margin Ratio = (SP - VC)/SP = ($13 - $9.36)/$13 = 28%
BEP dollars = Fixed cost/Contribution margin Ratio = $23,400