Exercise 6-6 Break-Even Analysis [LO6-5] Mauro Products distributes a single pro

Question

Exercise 6-6 Break-Even Analysis [LO6-5] Mauro Products distributes a single product, a woven basket whose selling price is $16 per unit and whose variable expense is $11 per unit. The company's monthly fixed expense is $6,000. 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? (Do not round intermediate calculations.) 1. Break-even point in unit sales 2. Break-even point in dollar sales 3. Break-even point in unit sales baskets baskets Break-even point in dollar sales

Explanation / Answer

1. Break-even point in unit sales = Fixed costs / (Unit selling price - Unit variable cost) = $6,000 / ($16 - $11) = 1,200 baskets

2. Contribution margin ratio = $5 / $16 = 0.3125 or 31.25%

Break-even point in dollar sales = Fixed costs / Contribution margin ratio = $6,000 / 0.3125 = $19,200

3. Break-even point in unit sales = Fixed costs / (Unit selling price - Unit variable cost) = ($6,000 + $600) / ($16 - $11) = 1,320 baskets

Break-even point in dollar sales = Fixed costs / Contribution margin ratio = ($6,000 + $600) / 0.3125 = $21,120

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