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If a company has fixed costs of $60,000 and a contribution margin ratio of 40%,
If a company has fixed costs of $60,000 and a contribution margin ratio of 40%, what is the sales required to break even?
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Practice Questions
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Q1
If a company has fixed costs of $60,000 and a contribution margin ratio of 40%, what is the sales required to break even?
$150,000
$100,000
$75,000
$200,000
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Break-even sales = Fixed Costs / Contribution Margin Ratio = $60,000 / 0.40 = $150,000.
Questions & Step-by-step Solutions
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Q
Q: If a company has fixed costs of $60,000 and a contribution margin ratio of 40%, what is the sales required to break even?
Solution:
Break-even sales = Fixed Costs / Contribution Margin Ratio = $60,000 / 0.40 = $150,000.
Steps: 6
Show Steps
Step 1: Identify the fixed costs. In this case, the fixed costs are $60,000.
Step 2: Identify the contribution margin ratio. Here, the contribution margin ratio is 40%, which can be written as 0.40 in decimal form.
Step 3: Use the break-even formula. The formula to calculate break-even sales is: Break-even sales = Fixed Costs / Contribution Margin Ratio.
Step 4: Plug in the values into the formula. So, you will calculate: $60,000 / 0.40.
Step 5: Perform the division. When you divide $60,000 by 0.40, you get $150,000.
Step 6: Conclusion. The sales required to break even is $150,000.
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