Question & Answer: Mauro Products distributes a single product, a woven basket whose selling price is $28 and whose variable expen…..

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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

 

 

 

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