Mauro products distributes a single product, a woven basket whose selling price is $16 per unit and whose variable expense is $12 per unit. the company’s monthly fixed expense is $10,000. 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. 2,500 units

2. $40,000

3. Revised Unit Sales - 2,650 units & Revised dollar sales - $42,400

Explanation:

Break even Point : The break even point is that point in which the firm has no profit or no loss or we can say that total revenue is equal to total expenditure.

1. Computation of break-even point in unit sales:

Break even point in unit sales = Fixed cost ÷ (Sales per unit - variable cost per unit)

                                                 = $10,000 ÷ ($16 - $12)

                                                 = 2,500 units

where, contribution = Sales per unit - variable cost per unit

Thus, the break-even point in unit sales is 2,500 units.

2. Calculation of break-even point in dollar sales :

The formula is shown below:

= Fixed cost ÷ Profit volume ratio

where, Profit volume ratio = (Contribution ÷ Sales) × 100

                                            = ($4 ÷ $16) × 100

                                            = 25%

So, Break even point in dollar sales = $10,000 ÷ 25%

                                                           = $40,000

Thus, the Break even point in dollar sales is $40,000

3. Calculation of new break-even point in unit sales is shown below:

Revised Fixed cost = $10,000 +$600 = $10,600

And, contribution is same.

So, new break-even point in unit sales = Fixed cost ÷ Contribution per unit

= $10,600 ÷ $4

= 2,650 units

Thus, new break-even point in unit sales is 2,650 units.

By applying the formula, the calculation of new break-even point in dollar sales is shown below:

New break-even point (BEP) in dollar sales = Fixed cost ÷ Profit volume ratio

Since, the Profit volume ratio remains same.

So, break-even point (BEP) in dollar sales = $10600 ÷ 25%

                                                                        = $42,400

Hence, New break-even point (BEP) in dollar sales is $42,400

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