Question

Mauro Products distributes a single product, a woven basket whose selling price is $26 per unit and whose variable expense is $19 per unit. The company's monthly fixed expense is $14,000. 

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?

Answer 1

Answer

1) Break-even point in unit sales = 2000 baskets

2) Break-even in dollar sales = $52,005.944

3) Break-even point in unit sales = 2086 baskets

  Break-even in dollar sales = $54234.770

Explanation

1) Break-even point in unit sales. = fixed cost / (selling price - variable cost)

= $14000/($26 - $19)

= $14000/$7

= 2000 baskets

2) Break-even point in dollar sales = fixed costs / contribution margin

= contribution margin = (sales price - variable cost) / selling price

= ($26 - $19) / $ 26

= $7 / $26

= .2692

Break-even point in dollar sales = $14000 / .2692

= $52,005.944

3) Break-even point in unit sales. = fixed cost / (selling price - variable cost)

= $14600/($26 - $19) (Fixed cost increases by $600)

= $14600/$7

= 2085.714

= 2086 Baskets ( Rounded as units cant be in decimals)

2) Break-even point in dollar sales = fixed costs / contribution margin

= contribution margin = (sales price - variable cost) / selling price

= ($26 - $19) / $ 26

= $7 / $26

= .2692

Break-even point in dollar sales = $14600 / .2692

= $54,234.770