Question

Mauro Products distributes a single product, a woven basket whose selling price is $10 per unit and whose variable expense is $9 per unit. The company's monthly fixed expense is $2,800. 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 Break-even point in dollar sales 3. Break-even point in unit sales Break-even point in dollar sales baskets

Answer 1

Part-1:

Computation the break-even point units is:

Break-even point units = Fixed expenses / Contribution margin of each unit

= $2,800 / $1

= 2,800 baskets

Hence, the break-even point units is 2,800 baskets.

Working note:

Computation of contribution margin of each unit is:

Contribution margin of each unit = Sales price - Variable costs

= $10 - $9

= $1

Hence, the contribution margin of each unit is $1.

Part-2:

Computation the break-even point in dollar is:

Break-even point in dollar = Fixed expenses / Contribution margin ratio

= $2,800 / 10%

= $28,000

Hence, the break-even point in dollar is $28,000.

Working note:

Computation of contribution margin ratio is:

Contribution margin ratio = (Contribution margin of each unit / Sales price) * 100

= ($1 / $10) * 100

= 0.10 * 100

= 10%

Hence, the contribution margin ratio is 10%.

Part-3:

a.

Computation the break-even point units is:

Break-even point units = New fixed expenses / Contribution margin of each unit

= $3,400 / $1

= 3,400 baskets

Hence, the break-even point units is 3,400 baskets.

Working note:

Computation the new fixed expenses is:

New fixed expenses = Old fixed expenses + Increased fixed expenses

= $2,800 + $600

= $3,400

Hence, the new fixed expenses is $3,400.

b.

Computation the break-even point in dollar is:

Break-even point in dollar = New fixed expenses / Contribution margin ratio

= $3,400 / 10%

= $34,000

Hence, the break-even point in dollar is $34,000.