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Mauro Products distributes a single product, a woven basket whose selling price is $28 and whose variable expense is $23.24 per unit. The company’s monthly fixed expense is $10,472.
a. Solve for the company’s break-even point in unit sales using the equation method.
b. Solve for the company’s break-even point in dollar sales using the equation method and the CM ratio.
c. Solve for the company’s break-even point in unit sales using the formula method.
d. Solve for the company’s break-even point in dollar sales using the formula method and the CM ratio.
Expert Answer
Answer a.
Selling Price = $28
Variable Expense per unit = $23.24
Fixed Expenses = $10,472
Let x be the breakeven number of units sold
Under equation method:
Sales = Variable Expense + Fixed Expense
$28*x = $23.24*x + $10,472
$4.76*x = $10,472
x = 2,200
So, Breakeven point in unit sales is 2,200 units
Answer b.
Selling Price = $28
Variable Expense per unit = $23.24
Fixed Expenses = $10,472
CM Ratio = (Selling Price – Variable Expense per unit) / Selling Price
CM Ratio = ($28.00 – $23.24) / $28.00
CM Ratio = 0.17
Let $x be the breakeven point in dollar sales
Sales = Variable Expense + Fixed Expense
Sales – Variable Expense = Fixed Expense
Contribution Margin = Fixed Expenses
$x*0.17 = $10,472
$x = $61,600
So, Breakeven point in dollar sales is $61,600
Answer c.
Selling Price = $28
Variable Expense per unit = $23.24
Fixed Expenses = $10,472
Breakeven point in unit sales = Fixed Expenses / (Selling Price – Variable Cost per unit)
Breakeven point in unit sales = $10,472 / ($28.00 – $23.24)
Breakeven point in unit sales = 2,200
Answer d.
Under Formula Method:
Selling Price = $28
Variable Expense per unit = $23.24
Fixed Expenses = $10,472
CM Ratio = (Selling Price – Variable Expense per unit) / Selling Price
CM Ratio = ($28.00 – $23.24) / $28.00
CM Ratio = 0.17
Breakeven Point in dollar sales = Fixed Expenses / CM Ratio
Breakeven Point in dollar sales = $10,472 / 0.17
Breakeven Point in dollar sales = $61,600
