Answer:
Vault-Tec's break-even level of sales ==$3,000,000
Explanation:
Break-even point is the level of activity at which a firm must operate such that its total revenue will equal its total costs. At this point, the company makes no profit or loss.
It is calculated using this formula:
Break-even point (sales) = Fixed cost/c/s ratio.
c/s means contribution to sales ratio
C/s ratio = (sales - variable cost)/sales
C/S is the proportion of sales value that is earned as contribution. its is sales less variable costs.
So if for an instance, variable costs are 60% of sales, then contribution will be 40% of sales i.e (100-60)% .
<em>Now we can apply these concepts to our questions:</em>
c/s =( 100-75)% = 25%
Break-even point( sales) = (1,000,000- 250,000)/25%
= 750,000/0.25
=$3,000,000
<em>Note that depreciation is excluded from the fixed costs because it is a non-cash flow item.</em>
Vault-Tec's break-even level of sales ==$3,000,000
