Question

Sales $ 2,000,000 100 % $ 500,000 100 % $ 2,500,000 100 % Variable expenses 800,000 40 % 250,000 50 % 1,050,000 42 % Contribution margin $ 1,200,000 60 % $ 250,000 50 % 1,450,000 58 % Fixed expenses 870,000 Net operating income $ 580,000 Knowledge Check 01 What is the amount of the break-even sales for Grace Food Company? $1.2 million $2.2 million $2.0 million $1.5 million

Answer 1

$1.5 million

Step-by-step explanation:

The computation of break even sales in dollars is shown below:

= (Fixed expenses) ÷ (profit volume ratio)

where,

Contribution margin = Sales - Variable expense

= $2,500,000 - 1,050,000

= $1,450,000

And, Profit volume ratio = (Contribution) ÷ (sales) × 100

So, the Profit volume ratio = ($1,450,000) ÷ ( $2,500,000) × 100 = 58%

And, the fixed expenses is $870,000

Now put these values to the above formula

So, the value would equal to

= ($870,000) ÷ (58%)

= $1.5 million