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 $14 and whose variable expense is $11.2 per unit. The company's monthly fixed expense is $4,480 Required: 1. Solve for the company's break-even point in unit sales using the equation method. (Do not round your intermediate calculations.) 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 Break-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.) it sales baskets 4. 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.) CM ratio Break-even point in dollar sales

Explanation / Answer

1) break even point in unit sales under equation method :

                 Profit = (Unit CM * Quantity )- Fixed expenses

                       Unit CM = ( selling price – variable expense)

                           $0 =( ($14-$11.2)*Q)-$4,480

                          $0 = ($2.8Q)-$4,480

                        $2.8Q = $4,480

                         Q = $4,480/$2.8

                       Q = 1600 baskets

            break even point in unit sales = 1600 baskets

2) break even point in dollar sales and CM ratio :

         

          CM ratio = Unit CM / Unit selling price

         CM ratio = $2.8/ $14

          CM ratio = 0.2

                   CM ratio = 20%

    

              Profit = (CM ratio* sales )- Fixed expenses

                       $0 = (20%*sales)-$4,480

                     20% *sales = $4,480

                                 Sales =$4,480/20%

                              Sales = $22,400

    Break even point in dollar sales = $22,400

3) break even point in unit sales under formula method :

                 Unit sales to breakeven = fixed expenses/unit CM

                 Unit sales to break even = $4,480/$2.8

                 Unit sales to break even = 1600 baskets

4)   break even point in dollar sales and CM ratio :

                             CM ratio = 20%

        break even point in dollar sales = fixed expenses/CM ratio

        break even point in dollar sales = $4,480/20%

        break even point in dollar sales = $22,400

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