Question

Break-Even Analysis

Mauro 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.

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2. Calculate the company’s break-even point in dollar sales.

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3. If the company’s fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales?

Answer 1

Break-even point:

Break-Even point is a point where the position of the organization is neither it incurs any loss nor generates any profit. It is calculated by the organization to know the level of sale, which starts generating profits. The break-even sales volume (units) and break-even sales (dollars) is shown as below:

1.

Calculate the company’s break-even point in unit sales:

Hence, break-even point in unit sales is 1,400 units.

2.

Calculate the company’s break-even point in dollar sales:

Hence, break-even point in dollar sales is $21,000.

3.

Calculate new break-even point in unit sales and in dollar sales if fixed expenses increased by $600:

Break-even point in unit sales:

Hence, break-even point in unit sales is 1,600 units.

Break-even point in dollar sales:

Hence, break-even point in dollar sales is $24,000.