Question

The manager of Dukey’s Shoe Station estimates operating costs for the year will include $450,000 in fixed costs. Required: a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent. b. Find the break-even point in sales dollars with a contribution margin ratio of 25 percent. c. Find the sales dollars required to generate a profit of $100,000 for the year assuming a contribution margin ratio of 40 percent.

Answer 1

a. $1,250,00

b. $1,800,000

C. $1,375,000

Step-by-step explanation:

a. BEP in sales dollar with 40% Contribution margin ratio

= Fixed costs / Contribution margin ratio

= $450,000 / 40%

= $1,250,000

b. BEP in sales dollar with contribution margin ratio of 25%

= Fixed costs / Contribution margin ratio

= $450,000 / 25%

= $1,800,000

c. Sales required to generate a profit of $100,000 assuming a Contribution margin ratio of 40%.

= ( Fixed costs + Desired profit ) / Contribution margin ratio

= ($450,000 + $100,000) / 40%

= $550,000 / 40%

= $1,375,000