Question

Hopi Corporation expects the following operating results for next year:

Answer 1

Answer:

C. $195,000

Explanation:

Fixed expenses are those expenses which remains fix and do not vary with change in activity level. Most of these costs are period cost like, salary, rent etc.

At break-even the the business covers all the costs the variable and fixed costs as well.

Margin of safety is the level of sales over the break-even point.

Break-Even Point = Sales - Margin of safety = $400,000 - $100.000 = $300,000

Break even = Fixed cost / Contribution margin ratio

$300,000 = Fixed cost / 65%

Fixed Cost = $300,000 x 65% = $195,000

Answer 2

Answer:

195,000= fixed costs

Explanation:

Giving the following information:

Sales $400,000

Margin of safety $ 100,000

Contribution margin ratio of 65%

To calculate the fixed costs, we need to use the break-even point in dollars formula:

Break-even point (dollars)= fixed costs/ contribution margin ratio

300,000= fixed costs/ 0.65

195,000= fixed costs