Final answer:
Option (c), To break even, a firm would require dollar sales of $400,000 with a contribution margin ratio of 30 percent and fixed annual costs of $120,000.
Step-by-step explanation:
To calculate the dollar sales required to break even, we need to use the formula:
Sales - Variable costs - Fixed costs = Profit
In this case, the target profit is zero (breaking even) and the fixed costs are $120,000.
Given a contribution margin ratio of 30 percent, which means that 30 percent of each dollar of sales contributes to covering fixed costs and profit, we can set up the equation as follows:
(Sales * 0.30) - $120,000 = $0
Simplifying the equation, we get:
Sales * 0.30 = $120,000
Dividing both sides by 0.30, we find that:
Sales = $120,000 / 0.30 = $400,000
Therefore, a firm would require dollar sales of $400,000 to break even.