Question

Mauro Products distributes a single product, a woven basket whose selling price is $16 per unit and whose variable expense is $13 per unit. The company's monthly fixed expense is $4,800. Required: 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales. (Do not round intermediate calculations.) 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales? (Do not round intermediate calculations.) baskets 1. Break-even point in unit sales 2. Break-even point in dollar sales 3. Break-even point in unit sales Break-even point in dollar sales baskets

Answer 1

1	Break-even point in units sales        [Refer working note 1]	1,600	baskets
2	Break-even sales dollars sales          [Refer working note 2]	$25,600
3	Break-even point in units sales         [Refer working note 3]	1,800	baskets
	Break-even sales dollars sales          [Refer working note 4]	$28,800

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Working note 1 - Break-even point in unit sales
Fixed costs	/	Contribution margin per unit [Refe working note 5]	=	Break -Even units
$4,800	/	$3	=	1,600	units

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Working note 2 - Break-even point in dollar sales
Fixed costs	/	Contribution margin ratio [Refe working note 6]	=	Break -Even dollars
$4,800	/	18.75%	=	$25,600

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Working note 3 - Break-even point in unit sales when there is an increase in fixed expenses by $600
Fixed costs	/	Contribution margin per unit [Refe working note 5]	=	Break -Even units
$5,400 [$4,800 + $600]	/	$3	=	1,800	units

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Working note 4 - Break-even point in dollar sales when there is an increase in fixed expenses by $600
Fixed costs	/	Contribution margin ratio [Refe working note 6]	=	Break -Even dollars
$5,400 [$4,800 + $600]	/	18.75%	=	$28,800

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Working note 5 - Contribution margin per unit
	Sales per unit	$16		per unit
Less:	Variable cost per unit	$13		per unit
	Contribution margin per unit	$3		per unit

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Working note 6 - Contribution margin ratio
Contribution margin per unit	/	Sales per unit	=	Contribution margin ratio
$3	/	$16	=	18.75%