Question

The Equality Company is now breaking even at sales of $400,000. The company has a total fixed cost of $150,000. The company’s budgeted sales for next period are $600,000. What profit can the company expect for the next period?

Answer 1

$75,000

Step-by-step explanation:

The computation of the expected profit is shown below:

We know that

Break even point in sales dollars = (Total fixed cost) ÷ (Profit volume Ratio)

$400,000 = $150,000 ÷ Profit volume Ratio

So, the Profit volume Ratio is

= 37.5%

Now the expected profit would be

= Sales × Profit volume Ratio - total fixed cost

= $600,000 × 37.5% - $150,000

= $225,000 - $150,000

= $75,000