Question

The manager of Dukey’s Shoe Station estimates operating costs for the year will include $480,000 in fixed costs. Required: a. Find the break-even point in sales dollars with a contribution margin ratio of 50 percent. b. Find the break-even point in sales dollars with a contribution margin ratio of 30 percent. c. Find the sales dollars required to generate a profit of $250,000 for the year assuming a contribution margin ratio of 50 percent.

Answer 1

Answer:

a. $960,000

b. $1,600,000

c. $1,460,000

Explanation:

a. Break even point in sales dollar with a contribution margin ratio of 50%

= Fixed cost / Contribution margin ratio

Given that

Fixed cost = $480,000

Contribution margin ratio = 50%

Break even point in sales dollar = $480,000 / 50%

= $960,000

b. Break even point in sales dollar with a Contribution margin ratio of 30%

= Fixed costs / Contribution margin ratio

Given that

Fixed costs = $480,000

Contribution margin ratio = 30%

Break even point in sales dollar

= $480,000 / 30%

= $1,600,000

c. Sales dollar required to generate a profit of $250,000 with Contribution margin ratio of 50%

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

= ($480,000 + $250,000) / 50%

= $730,000 / 50%

= $1,460,000