Question

Use the information below to answer questions 4-7. Drake Company's income statement for the most recent year appears below:

Sales (26,000 units)................................... $650,000
Less: Variable expenses............................. 442,000
Contribution margin.................................. 208,000
Less: Fixed expenses................................. 234,000
Net operating loss...................................... $ (26,000)

The break-even point in sales dollars is: (A) $731,250 (B) $676,000 (C) $675,000 (D) $720,000

Answer 1

(A) $731,250

Step-by-step explanation:

The formula to compute the break-even point in sales dollars is shown below:

= (Fixed expenses or Fixed cost) ÷ (Contribution ratio)

where,

Contribution ratio = Contribution margin ÷ sales

= $208,000 ÷ $650,000

= 0.32 or 32%

And, the fixed expense is $234,000

Now put the values to the above formula

So, the value would equal to

= $234,000 ÷ 32%

= $731,250