Question

Pharoah Corp. had total variable costs of $179,400, total fixed costs of $74,400, and total revenues of $260,000. Compute the required sales in dollars to break even.

Answer 1

Answer: $240,000

Explanation: Step 1

Let's understand the basics.

Break-even point is a point at which no profit no loss condition arises. In other words, it is a point at which contribution equals to a fixed cost of the company.

Break even point (In amount) = Fixed cost/Contribution margin ratio

Contribution margin ratio = ((Sales - Variable cost)/Sales) * 100

Step 2

So here in this case,

Contribution margin ratio = (($260,000 - $179,400)/$260,000) * 100 = 31%

Break even point (In amounts) = $74,400/31= $240,000

Answer 2

$165,333.33

Step-by-step explanation:

The computation of the required sales in dollars to break even is as follow:

Break even point in dollars = Fixed cost ÷ contribution margin ratio

where,

Contribution margin ratio is

= (Sales - variable cost) ÷ (Sales)

= ($260,000 - $179,400) ÷ ($179,400)

= 45%

Now the break even point in dollar is

= $74,400 ÷ 0.45

= $165,333.33