Final answer:
To determine by how much Empire Company's sales can decrease and still break even, subtract the profit from the current sales and ensure the result covers the fixed costs. The calculation shows that sales can decrease by $5,740 from $253,000 and the company would still break even.
Step-by-step explanation:
To calculate the break-even point in sales, we first need to understand what break-even means. A company breaks even when its total sales are equal to its total expenses. The profit at break-even is zero. To determine how much sales can decrease while still breaking even, we subtract the current profit from the sales and then subtract fixed costs.
Last month's profit is given as $5,740, so we deduct that from the sales to find the sales amount at break-even: Break-even Sales = $253,000 - $5,740 = $247,260. Now, we need to ensure that this break-even sales number covers the fixed costs, which are $97,990 per month. Indeed, it does, since $247,260 is more than $97,990. Therefore, Empire Company can afford a decrease in sales of $253,000 - $247,260 = $5,740 without going below the break-even point.