A company has a selling price of $150, variable costs of $90, and fixed costs of
Practice Questions
Q1
A company has a selling price of $150, variable costs of $90, and fixed costs of $30,000. What is the break-even point in sales dollars?
$150,000
$200,000
$300,000
$400,000
Questions & Step-by-Step Solutions
A company has a selling price of $150, variable costs of $90, and fixed costs of $30,000. What is the break-even point in sales dollars?
Step 1: Identify the selling price, which is $150.
Step 2: Identify the variable costs, which are $90.
Step 3: Calculate the contribution margin by subtracting variable costs from the selling price: $150 - $90 = $60.
Step 4: Calculate the contribution margin ratio by dividing the contribution margin by the selling price: $60 / $150 = 0.4.
Step 5: Identify the fixed costs, which are $30,000.
Step 6: Calculate the break-even point in sales dollars by dividing fixed costs by the contribution margin ratio: $30,000 / 0.4 = $75,000.
Break-even Analysis – Determining the sales level at which total revenues equal total costs, resulting in no profit or loss.
Contribution Margin – The amount remaining from sales revenue after variable costs have been deducted, used to cover fixed costs.
Contribution Margin Ratio – The ratio of contribution margin to sales price, indicating the percentage of each sales dollar that contributes to fixed costs.
