Question

Liu Sales has two store locations. Sanford has fixed costs of $154,000 per month and a contribution margin ratio of 30%. Orlando has fixed costs of $340,000 per month and a contribution margin ratio of 70%. At what sales volume would the two stores have equal profits or losses?

Answer 1

Answer:

$465,000

Explanation:

The expressions that describe the profits for the Sanford and Orlando store are, respectively:

$P_S=0.3*V-\ 154,000\\P_O=0.7*V-\ 340,000$

Where 'V' is the sales volume. Both stores will experience the same profits or losses when they are equal. The value of 'V' for which the expressions are equal is:

$0.3*V-\ 154,000=0.7*V-\ 340,000\\0.4V=\ 186,000\\V=\ 465,000$

The sales volume at which the two stores have equal profits or losses is $465,000.