Question

Exercise 6-6 Break-Even Analysis (L06-5) Mauro Products distributes a single product, a woven basket whose selling price is $26 per unit and whose variable expense is $21 per unit. The company's monthly fixed expense is $5,000. 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? (D. 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

Selling price per unit = $26

variable cost per unit = $21

Fixed cost = $5,000

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 26 - 21

= $5

1.

Break even point in units = Fixed cost/Contribution margin per unit

= 5,000/5

= 1,000 baskets

2.

Break even point sales dollar = Break even point in units x Selling price per unit

= 1,000 x 26

= $26,000

3.

Fixed cost increased by $600

New fixed cost = 5,000 + 600

= $5,600

Break even point in units = New Fixed cost/Contribution margin per unit

= 5,600/5

= 1,120 baskets

Break even point sales dollar = Break even point in units x Selling price per unit

= 1,120 x 26

= $29,120

1	Break even point in unit sales	1,000`	Baskets
2	Break even point in dollar sales	$26,000
3	Break even point in unit sales	1,120	Baskets
	Break even point in dollar sales	$29,120