Question

A product sells for $205 per unit, and its variable costs are 60% of sales. The fixed costs are $464,000. What is the break-even point in sales dollars?

Answer 1

Answer: $1,160,000

Explanation: The Break even point depicts the amount of sales by making which the company will be at no profit or no loss situation. It can be computed using following formula :-

$Breakeven\:point=\frac{Fixed\:cost}{contribution\:margin\:ratio}$

where,

contribution margin = 1 - variable cost ratio

                                   = 1 - 0.6

                                   = 0.4

so, putting the values into equation we get :-

$Breakeven\:point=\frac{\ 464,000}{0.4}$

                                    = $1,160,000