Question

Last month Peggy Company had a $42,028 profit on sales of $331,200. Fixed costs are $83,828 a month. What sales revenue is needed for Peggy to break even? (Round your answer to the nearest dollar amount.)

Answer 1

Answer:

$220,600

Explanation:

Break-even point refers to the point where total costs is equal to total revenue, i.e. where there is neither loss nor profit. Therefore, break-even sales revenue refers to the level of sales revenue at which there neither profit nor loss. This can be calculated as follows:

Break-even sales revenue = TFC ÷ CMR ………………………………….. (1)

Where;

TFC = Total fixed cost = $83,828

CMR = Contribution margin ratio = Total contribution ÷ Sales revenue

Contribution = TFC + Profit on sales = $83,828 + $42,028 = $125,856

Therefore;

CRM = 125,856 ÷ 331, 200 = 0.38

Substituting the values obtained for TFC and CRM into equation (1), we have:

Break-even sales revenue = TFC ÷ CMR = $83,828 ÷ 0.38 =$220,600

Therefore, the sales revenue needed by Peggy to break even is $220,600.

Answer 2

Answer:

Break-even Sales revenue =$220,600

Explanation:

Breakeven point is the level of activity that equates the total cost to the total revenue.

At the break-even point the business makes no profit and no loss.

Break-even point = Total fixed cost for the period / Contribution margin ratio

Contribution margin = total contribution/ total sales

Contribution = Fixed cost + profit

Contribution = $42,028 + $83,828

                     =  $125,856.00

Contribution to sales ratio

= (125,856.00 /331, 200) × 100

= 38%

Break-even sales revenue = $83,828/0.38

                        =$220,600