Question

The manager at Vertical Wire Productions reported total sales revenue of $800,000. The variable expenses were $600,000, and there were $125,000 of total fixed expenses. Use the contribution margin shortcut formula to predict the breakeven point in dollars.

Answer 1

Answer:

$BEP_{dollars} = 500,000$

Explanation:

The first step will be  get the contribtuion margin:

$Sales\: Revenue - Variable \:Cost = Contribution \:Margin$

800,000 - 6000,000 = 200,000

This is the amount after variables cost used to pay the fixed cost and make a gain.

Second, we calcualte the contribution margin ratio

$\frac{Contribution \:Margin}{Sales\: Revenue} = Contribution\: Margin\: Ratio$

200,000/800,000 = 0.25

Per dollar of sales 25 cents are available to pay the fixed cost.

Now, we calculate the break even point in dollars

$\frac{Fixed\:Cost}{Contribution\: Margin \:Ratio} = Break\: Even\: Point_{dollars}$

$\frac{125,000}{.025} = 500,000$