Question

QuadCity​ Manufacturing, Inc. reported the following​ items: Sales​ = $6,000,000; Variable Costs of Production​ = $1,500,000; Variable Selling and Administrative Expenses​ = $550,000; Fixed Costs​ = $1,350,000; EBIT​ = $2,600,000; and the Marginal Tax Rate​ = 35%.​ QuadCity's breakminus even point in sales dollars is

A) $2,050,633.
B) $2,197,500.
C) $2,438,750.
D) $2,785,000.

Answer 1

Correct option is A) $2,050,633

Step-by-step explanation:

Break even Point in dollars =
`(Fixed\: Cost)/(Contribtuion \: margin)`

Here, fixed cost = $1,350,000

Contribution margin =
`(Contribution)/(sales) * 100`

Contribution = Sales - Variable Cost

Sales = $6,000,000

Variable cost = $1,500,000

Variable Selling & Administration = $550,000

Contribution = $6,000,000 - $1,500,000 - $550,000 = $3,950,000

Contribution margin =
`(3,950,000)/(6,000,000) * 100` = 65.83%

Break Even Point in dollars =
`(1,350,000)/(0.6583)` = $2,050,633.

Thus correct option is A) $2,050,633