Question

Waleska Garment Company produces hats and gloves. Hats account for 60% of the company's total sales revenue, whereas gloves account for about 40%. The contribution margin ratios for hats and gloves are 45% and 35%, respectively. Waleska's fixed costs average $400,000 per month.

Refer to the information above. Waleska's monthly break-even point expressed in sales dollars is:
A. $1,000,000.
B. $1,105,714.
C. $975,610.
D. $2,200,714.

Answer 1

The break-even point in sales dollars for Waleska Garment Company, considering the contribution margin ratios for hats and gloves along with the fixed costs, is $975,610.

Step-by-step explanation:

The question involves calculating the break-even point in sales dollars for Waleska Garment Company, which produces hats and gloves. Given that hats make up 60% of sales and gloves 40%, with contribution margins of 45% and 35% respectively, alongside fixed costs of $400,000, we need to find the combined weighted average contribution margin. The weighted average contribution margin ratio (CMR) is calculated as follows:

• (60% × 45%) + (40% × 35%) = 27% + 14% = 41%

Using this CMR, the break-even sales can be calculated using the formula:

Break-even Sales = Fixed Costs / CMR

Which would be:

Break-even Sales = $400,000 / 0.41 = $975,610

Therefore, the correct answer is C. $975,610.