Auro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $12 per unit. The company’s monthly fixed expense is $4,200. Required: 1. Calculate the company’s break-even point in unit sales. 2. Calculate the company’s break-even point in dollar sal

(1) 1,400 units

(2) $21,000

Explanation:

Given that,

Selling price = $15 per unit

Variable expense = $12 per unit

Fixed expense = $4,200

Contribution margin per unit:

= Selling price - Variable expense

= $15 - $12

= $3

Contribution margin ratio :

= Contribution margin per unit ÷ Selling price per unit

= $3  ÷ $15

= 0.2 or 20%

1. Break even point:

= Fixed expense ÷ Contribution margin per unit

= $4,200 ÷ $3

= 1,400 units

2. Break even point in dollar sales:

= Fixed expenses ÷ Contribution margin ratio

= $4,200 ÷ 20%

= $21,000

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explanation:

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