Question

The manager at Vertical Wire Productions reported total sales revenue of $800,000. The variable expenses were $600,000, and there were $125,000 of total fixed expenses. Use the contribution margin shortcut formula to predict the breakeven point in dollars.

Answer 1

`BEP_(dollars) = 500,000`

Step-by-step explanation:

The first step will be get the contribtuion margin:

`Sales\: Revenue - Variable \:Cost = Contribution \:Margin`

800,000 - 6000,000 = 200,000

This is the amount after variables cost used to pay the fixed cost and make a gain.

Second, we calcualte the contribution margin ratio

`(Contribution \:Margin)/(Sales\: Revenue) = Contribution\: Margin\: Ratio`

200,000/800,000 = 0.25

Per dollar of sales 25 cents are available to pay the fixed cost.

Now, we calculate the break even point in dollars

`(Fixed\:Cost)/(Contribution\: Margin \:Ratio) = Break\: Even\: Point_(dollars)`

`(125,000)/(.025) = 500,000`