If the total fixed costs are $12,000 and the contribution margin ratio is 40%, w

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Question: If the total fixed costs are $12,000 and the contribution margin ratio is 40%, what is the sales revenue needed to break even?

Options:

Correct Answer: $40,000

Solution:

Break-even sales revenue = Fixed costs / Contribution margin ratio = $12,000 / 0.40 = $30,000.

If the total fixed costs are $12,000 and the contribution margin ratio is 40%, what is the sales revenue needed to break even?

If the total fixed costs are $12,000 and the contribution margin ratio is 40%, what is the sales revenue needed to break even?

Step 1: Identify the total fixed costs, which is given as $12,000.
Step 2: Identify the contribution margin ratio, which is given as 40% (or 0.40 in decimal form).
Step 3: Use the break-even formula: Break-even sales revenue = Fixed costs / Contribution margin ratio.
Step 4: Plug in the values: Break-even sales revenue = $12,000 / 0.40.
Step 5: Calculate the result: $12,000 divided by 0.40 equals $30,000.
Step 6: Conclude that the sales revenue needed to break even is $30,000.

Break-even Analysis – The process of determining the sales revenue needed to cover total fixed costs, using the contribution margin ratio.
Contribution Margin Ratio – The percentage of each sales dollar that contributes to covering fixed costs and generating profit.
Fixed Costs – Costs that do not change with the level of production or sales, remaining constant regardless of output.