Question

Last month Carlos Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Carlos to break even? A. $420,000 B. $200,000 C. $360,000 D. $240,000

Answer 1

Answer:

B. $200,000

Explanation:

Contribution margin = Fixed costs + Profit

Contribution margin = $120,000 + $60,000

Contribution margin = $180,000

Contribution margin ratio = Contribution margin/Sales

Contribution margin ratio= $180,000/$300,000

Contribution margin ratio = 60%

Break-even sales revenue = Fixed costs/Contribution margin ratio

Break-even sales revenue = $120,000/60%

Break-even sales revenue = $200,000

Hence, $200,000 is the sales revenue needed for Carlos to break even