Exercise 5-6 Compute the Break-Even Point [LO5-5] Mauro Products distributes a s

Question

Exercise 5-6 Compute the Break-Even Point [LO5-5] Mauro Products distributes a single product, a woven basket whose selling price is $26 and whose variable expense is $23.14 per unit. The company's monthly fixed expense is $5,720. Required 1. Solve for the company's break-even point in unit sales using the equation method. (Do not round your intermediate calculations.) Break-even point in unit sales 2,000 baskets 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.) CM ratio k-even point in dollar sales 3. Solve for the company's break-even point in unit sales using the formula method. (Do not round your intermediate calculations.) Break-even point in unit sales baskets

Explanation / Answer

1) BEP in unit sales by using equation method px = vx + FC + Profit Where, p is the price per unit = $26 x is the number of units = ? v is variable cost per unit = $23.14 and FC is total fixed cost = $5720 Profit at BEP = $0 $26x = $23.14x + $5720 + $0 $26x-$23.14x = $5720 2.86x = $5720 x = $5720/2.86 = 2000 units 2) CM Ratio = Contribution margin per unit / Sales price per unit Contribution margin per unit = Selling price per unit - Variable cost per unit = $26-$23.14 = $2.86 Sales price per unit = $26 CM Ratio = 2.86/26 = 11% BEP in dollar sales by using equation method px = vx + FC + Profit Where, p is the price per unit = $26 x is the number of units = ? v is variable cost per unit = $23.14 and FC is total fixed cost = $5720 Profit at BEP = $0 $26x = $23.14x + $5720 + $0 $26x-$23.14x = $5720 2.86x = $5720 x = $5720/2.86 = 2000 units BEP in dollar sales = 2000*$26 = $52000 3) BEP in unit sales by using formula method = Total fixed costs / Contribution margin per unit Contribution margin per unit = Selling price per unit - Variable cost per unit = $26-$23.14 = $2.86 Total fixed costs = $5720 BEP in unit sales = $5720/$2.86 = 2000 units 4) CM Ratio = Contribution margin per unit / Sales price per unit Contribution margin per unit = Selling price per unit - Variable cost per unit = $26-$23.14 = $2.86 Sales price per unit = $26 CM Ratio = 2.86/26 = 11% BEP in dollar sales by using formula method = Total fixed costs / Contribution margin ratio Contribution margin ratio = 11% Total fixed costs = $5720 BEP in unit sales = $5720/11% = $52000

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