Final answer:
(b) $200,000 the correct answer.
The firm will need to generate $200,000 in sales to cover its $80,000 in fixed costs and reach its break-even point, given a contribution margin ratio of 40%. Therefore, option (b) $200,000 is the correct answer.
Step-by-step explanation:
To calculate the dollar sales required to break-even, we can use the contribution margin ratio. The contribution margin ratio indicates how much each dollar of sales contributes to covering fixed costs after variable costs have been subtracted. The formula to determine the break-even point in dollars is:
Break-Even Sales = Fixed Costs / Contribution Margin Ratio
Given a fixed annual cost of $80,000 and a contribution margin ratio of 40%, the break-even sales can be calculated as follows:
Break-Even Sales = $80,000 / 0.40 = $200,000
Therefore, the firm will need to generate $200,000 in sales to cover all its fixed costs and reach the break-even point, making choice (b) $200,000 the correct answer.