Question

Dalmatian Fire Insurance Agency had total sales last year of $700,000, total variable costs of $500,000, and total fixed costs of $100,000. Accordingly, Dalmatian’s net income for last year was $100,000 ($700,000 - $500,000 - $100,000). What is Dalmatian’s break-even point in total sales dollars?

Answer 1

Answer: $350,017.50 is the break even point in total sales dollars

Explanation:Break even point in sales is calculated as:

first we need to calculate the contribution Margin per unit

= sales -variable cost

= 700,000-500,000

= 200,000 is the Contribution Margin per unit

Contribution Margin ratio is calculate thus:

= Contribution margin per unit / sales

= 200,000 / 700,000

= 0.2857

=28.57%

Now to calculate the BEP in sales

= fixed cost/CMR

= 100,000/28.57%

=100,000/0.2857

= 350,017.50