Question & Answer: Mauro Products distributes a single product, a woven basket whose selling price is $29 and whose variable expense is $20.88 per unit……

Mauro Products distributes a single product, a woven basket whose selling price is $29 and whose variable expense is $20.88 per unit. The company’s monthly fixed expense is $9, 744. Required: a. Solve for the company’s break-even point in unit sales using the equation method. (Do not round your intermediate calculations.) b. Solve for the company’s break-even point in dollar sales using the equation method and the CM ratio. (Do not round intermediate calculations. Round “CM ratio percent” to nearest whole percent.) c. Solve for the company’s break-even point in unit sales using the formula method. (Do not round your intermediate calculations.) d. Solve for the company’s break-even point in dollar sales using the formula method and the CM ratio. (Do not round intermediate calculations. Round “CM ratio percent” to nearest whole percent.)

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Answer to Part 1.

Profit = (Units Contribution Margin * Quantity) – Fixed Expenses
Units Contribution Margin = Unit Sale Price – Unit Variable Cost
Units Contribution Margin = $29 – $20.88
Units Contribution Margin = $8.12

At Break Even Point, the Profit will be Zero. Therefore,
$0 = ($8.12 * Quantity) – $9,744
$9,744 = $8.12 * Quantity
Quantity = 1,200 units

Answer to Part 2.

Contribution Margin Ratio (CM ratio) = Contribution Margin / Sales * 100
Contribution Margin Ratio (CM ratio) = 8.12 / 29 * 100
Contribution Margin Ratio (CM ratio) = 28%

As per Equation Method,
Profit = (CM ratio * Sales) – Fixed Expenses
$0 = (0.28 * Sales) – $9,744
$9,744 = 0.28 * Sales
Sales = $34,800

Answer to Part 3.

As per Formulae method,
Break Even Point (in units) = Fixed Cost / Contribution Margin per unit
Units Contribution Margin = Unit Sale Price – Unit Variable Cost
Units Contribution Margin = $29 – $20.88
Units Contribution Margin = $8.12

Break Even Point (in units) = 9,744 / 8.12
Break Even Point (in units) = 1,200 units

Answer to Part 4.

Contribution Margin Ratio (CM ratio) = Contribution Margin / Sales * 100
Contribution Margin Ratio (CM ratio) = 8.12 / 29 * 100
Contribution Margin Ratio (CM ratio) = 28%

Break Even Point (in Dollar Sales) = Break Even Point (in units) * Selling Price per unit
Break Even Point (in Dollar Sales) = 1,200 * $29
Break Even Point (in Dollar Sales) = $34,800

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