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