Question

Sabv Corporation's break-even-point in sales is $840,000, and its variable expenses are 75% of sales. If the company lost $34,000 last year, sales must have amounted to:

Answer 1

Answer:sales must have amounted to:$704,000

Explanation:

Contribution ratio = Sales ratio - Variable cost ratio

= 100%- 75%

=25%

Sales to break even = Fixed expenses / Contribution margin ratio

Therefore,

 Fixed expenses = Sales to break even   x  Contribution margin ratio

=$840,000 x 25%

=$210,000

Contribution margin can also be calculated as

Fixed expenses- Operating loss

=$210,000 -$34,000

=$176,000

Sales = Contribution margin/ Contribution ratio

= $176,000/25% =$704,000