Question

Sabv Corporation's break-even-point in sales is $675,000, and its variable expenses are 75% of sales. Required: If the company lost $24,000 last year, calculate the amount of total sales the company must have had. Input your answer in whole dollars (i.e., no decimal places).

Answer 1

Answer: $579,000

Explanation:

First we will calculate the Contribution Margin ratio which the selling price minus the variable cost

= 1 - Variable expense ratio

= 1 - 0.75

= 0.25

Then we have to calculate the fixed expenses using the break-even point formula which is calculated thus,

Break-even point= Fixed expenses/CM ratio

Now we have both the CM ratio and the break even amount so imputing them would give us,

$675,000 = Fixed expenses/ 0.25

Fixed expenses = $675,000 × 0.25 = $168,750

Now to calculate the sales by using the profit formula which is,

Profit = (CM ratio × Sales) - Fixed expenses

We have all of the above except the Sales so here goes

Sales = Profit + Fixed expenses / CM ratio

Sales = -24,000 + 168,750 ÷ 0.25

= $579,000

Sales are therefore $579,000

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