Question

Question Mauro Products has a single product, a woven basket whose selling price is $ 15 and whose variable cost is $12 per unit. The company's monthly fixed expenses are $4,200. Required: 1. Solve for the company's break-even point in unit sales using the equation method. 2. Solve for the company's break-even point in sales dollars using the equation method and the CM ratio. 3. Solve for the company's break-even point in unit sales using the contribution margin method. 4. Solve for the company's break-even point in sales dollars using the contribution margin method and the CM ratio.

Answer 1

Answer:

Price x Units = ( Variable Cost x Units ) + Fixed Cost + Profit

Let Unit = X

At Break Even, Profit = 0

PX = Vx + Fixed Cost

X    =   (Fixed Cost) / (selling price (-) variable expense )        =   $ 4,200 / ( $ 15 (-) $ 12 )        =   $ 4,200 / $ 3        =   1,400 Units

Break Even point in Unit Sales   = 1,400 Units

2)

Break Even point in Sales dollars             = Break Even point in Unit Sales x selling price             =   1,400 units x $ 15             =   $ 21,000

Break Even point in Sales dollars   =   $ 21,000

3)

Contribution Margin Per unit              = selling price (-) variable expense              =   $ 15 (-) $ 12              =   $ 3

Break Even Point in Unit Sales                = Fixed Cost / Contribution Margin Per unit                =    $ 4,200 / $ 3                =   1,400 Units

Break Even point in Unit Sales   = 1,400 Units

4)

Contribution Margin Per unit              = selling price (-) variable expense              =   $ 15 (-) $ 12              =   $ 3

Contribution Margin ratio           = Contribution Margin Per unit / Selling Price           =    $ 3 / $ 15           =     20%

Break Even Point in Unit Sales                = Fixed Cost / Contribution Margin ratio                =    $ 4,200 / 20%                =   $ 21,000

Break Even point in Sales dollars   =   $ 21,000