Question

A company has total fixed costs of $180,000 and a contribution margin ratio of 30%. How much sales are necessary to break even?

a) $540,000
b) $600,000
c) $54,000
d) $126,000

Answer 1

b) $600,000

Step-by-step explanation:

The break-even sales can be regarded as sales value in which the result makes the firm to report zero profit.

Total fixed costs was given from the question as ( $180,000)

The Contribution margin ratio was give from the question as ( 30%)= 0.3

✓break even point can be calculated as ratio of Total fixed costs to Contribution margin ratio. This can be expressed as

break even point=[Total fixed costs ]/ [ Contribution margin ratio.]

Substitute,

break even point= [ $180,000]/ [0.3]

=$600,000