Question

The following information pertains to Tiller Co.:

Sales$800,000
Variable Costs 160,000
Fixed Costs 40,000

What is Tiller's break-even point in sales dollars? (CPA adapted)


A. $200,000
B. $160,000
C. $50,000
D. $40,000

Answer 1

To calculate the break-even point in sales dollars for Tiller Co., we need to use the formula Break-even point (sales) = Fixed costs / Contribution margin ratio. By substituting the values given in the question, we can determine the break-even point to be C) $50,000.

Step-by-step explanation:

To calculate the break-even point in sales dollars, we need to find the level of sales at which the company's total costs equal its total revenue. The formula to calculate the break-even point is:

Break-even point (sales) = Fixed costs / Contribution margin ratio

Contribution margin ratio is calculated as:

Contribution margin ratio = (Sales - Variable costs) / Sales

Using the given information for Tiller Co., the contribution margin ratio is (800,000 - 160,000) / 800,000 = 0.8.

Substituting the values into the break-even point formula, we get:

Break-even point (sales) = 40,000 / 0.8 = $50,000

Therefore, Tiller's break-even point in sales dollars is $50,000. The correct answer is C.