Question

Last year easton corporation reported sales of $870,000, a contribution margin ratio of 40% and a net loss of $39,000. based on this information, the break-even point was:

Answer 1

First of all, the fixed expenses will be calculated -

Profit = (Sales * Contribution Margin) - Fixed expenses

Loss = $ 39,000, Sales = $ 870,000 and Contribution margin = 40 %

Using the equity of Profit -

- $ 39,000 = ( $ 870,000 * 40 %) - Fixed expenses

Fixed Expenses = $ 348,000 + $ 39,000 = $ 387,000

Now, Break-even point will be calculated as -

Break-even point = Fixed cost ÷ Contribution Margin

Break-even point = $ 387,000 ÷ 40 % = $ 967,500