Question

Variable cost ratio - 80%

Total fixed cost - $60,000
What volume of sales dollars is needed to break even?
A) 75,000
B) 300,000
C) 48,000
D) 12,000

Answer 1

To break even, the business would need to achieve a volume of sales dollars of $300,000, which is calculated by dividing the total fixed cost of $60,000 by the contribution margin ratio of 20%.

Step-by-step explanation:

To determine the volume of sales dollars needed to break even, you can use the following formula, where break-even point in sales dollars (BEP) is equal to total fixed costs (FC) divided by the contribution margin ratio (CMR), which is 1 minus the variable cost ratio (VCR).

BEP = FC / CMR

Given that the total fixed cost (FC) is $60,000 and the variable cost ratio (VCR) is 80%, the contribution margin ratio (CMR) is 1 - 0.80 = 0.20 (or 20%).

Therefore:

BEP = $60,000 / 0.20 = $300,000

So, the volume of sales dollars needed to break even is $300,000, which corresponds to option B in the multiple-choice answers provided.