Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $13 per unit.

Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $13 per unit. The company’s monthly fixed expense is $2,200.

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.)

Explanation

1.

The equation method yields the break-even point in unit sales, Q, as follows:

Profit	=	Unit CM × Q − Fixed expenses
$0	=	($15 − $13) × Q − $2,200
$0	=	($2) × Q − $2,200
$2Q	=	$2,200
Q	=	$2,200 ÷ $2
Q	=	1,100 baskets

2.

The equation method can be used to compute the break-even point in dollar sales as follows:

Unit sales to break even (a)		1,100
Selling price per unit (b)	$	15
Dollar sales to break even (a) × (b)	$	16,500

3.

The new break-even point in unit sales, Q, is computed as follows:

Profit	=	Unit CM × Q − Fixed expenses
$0	=	($15 − $13) × Q − $2,800
$0	=	($2) × Q − $2,800
$2Q	=	$2,800
Q	=	$2,800 ÷ $2
Q	=	1,400 baskets

The break-even point in dollar sales is computed as follows:

Unit sales to break even (a)		1,400
Selling price per unit (b)	$	15
Dollar sales to break even (a) × (b)	$	21,000

Thanks