Question

A firm with 60% of sales going to variable costs, $1.5 million fixed costs, and $500,000 depreciation and sales of $3 million. How does the current level of sales compare to the accounting break-even sales level

Answer 1

Current sales are $2 million below the break-even level.

Step-by-step explanation:

Calculation for How does the current level of sales compare to the accounting break-even sales level

First step is to calculate BEP using this formula

BEP= Fixed cost+depeciation/PV Ratio

Let plug in the formula

BEP= ($1.5 million+$0.5 million)/40%

BEP=$2 million/40%

BEP= $5 million

Now let calculate the current sales using this formula

Crrent sales =BEP-Sales

Let plug in the formula

Crrent sales=$5 million-$3 million

Crrent sales=$2 million

Therefore based on the above calculation the

Current sales of the amount of $2 million are below the break-even level.