Question

auley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are $21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is the break-even point in sales dollars? a.$130,000 b.$195,000 c.$420,000 d.$342,000 e.$252,000

Answer 1

Option (B) is correct.

Step-by-step explanation:

Contribution per unit :

= Selling Price per unit – Variable costs per unit

= $35 - $21

= $14 per unit

Contribution margin ratio :

= Contribution ÷ Sales

= $14 ÷ $35

= 0.40 or 40%

So, Break even point in Sales dollars :

= Fixed costs ÷ Contribution margin ratio

= $78,000 ÷ 40%

= $ 195,000