Mauro Products distributes a single product, a woven basket whose selling price
ID: 2540856 • Letter: M
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.
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.)
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.)
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.
Explanation / Answer
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
px = vx + FC + Profit