Question

Last year Easton Corporation reported sales of $480,000, a contribution margin ratio of 25% and a net loss of $16,000. Based on this information, the break-even point was:
A. $435,000

B. $544,000

C. $506,000

D. $600,000

Answer 1

Answer:

B. $544,000

Explanation:

Given: Sales: $480000.

           Contribution margin ratio= 25%

           net loss= $16000.

Break even point: It is point in business where profit is equal to expenses of the business.

Now, finding the fixed expense.

Fixed expense= $loss+ (contribution\ margin\times sales)$

⇒ Fixed expense= $16000+ (0.25\times 480000)$

⇒ Fixed expense= $16000+ 120000$

∴ Fixed expense=  $\ 136000$

Next, computing the break even point

Sales to Break even point= $\frac{Fixed\ expense}{Contribution\ margin\ ratio}$

⇒ Break even point= $\frac{136000}{0.25}$

∴ Break even point= $\ 544000$

Hence, the break even point was $544000