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Mauro Products distributes a single product, a woven basket whose selling price is $15 and whose variable expense is $12 per unit
Mauro Products distributes a single product, a woven basket whose selling price is $15 and whose variable expense is $12 per unit. The company’s monthly fixed expense is $4,200.
- Solve for the company’s break-even point in unit sales and dollar sales.
- solve for the unit sales that are required to earn a target profit of $14,000.
- Compute the company’s margin of safety.
- If the company is selling 10% above the break even units, calculate Net Profit and Operating leverage.
- If sales in increase by 15%, what percentage of net profit will increase?
Expert Solution
Ans: Contribution per unit : $ 15 - $12= $3 per unit.
Fixed cost: $ 4200
Break even in units: $ 4200 ÷ 3 per unit = 1400 units.
In dollars: 1400 * $ 15 = $ 21,000
Unit sales required to earn target profit ($ 14,000 + 4200 ) ÷ 3 = 6066.6 units.
Margin of safety = 6066.6 - 1400 units = 4666.6 units
If selling 10% above breakeven units then sales:
1400 * 1.1 = 1540 units.
Net profit : 1540*3 - $ 4200 = $ 420 profit.
Operating leverage : 1540 *3 ÷ ( 1540*3 - $4200)
= 11 times
If sales increase by 15%, then profit also increases by 15%.
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