Question

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the break-even point in dollars.

Answer 1

Answer: The break even point in dollars is $2,000,000.

We calculate the break even point (BEP) in dollars as follows:

$\mathbf{BEP = \frac{Fixed Costs}{Contribution Margin Ratio}}$

We calculate Contribution Margin ratio as :

$\mathbf{Contribution Margin Ratio = \frac{Sales - Variable Costs}{Sales}}$

$\mathbf{Contribution Margin Ratio = \frac{450 - 270}{450}} = 0.4$

Substituting the Contribution Margin Ratio in the break even point formula we get,

$\mathbf{BEP = \frac{800000}{0.4}}$

BEP = $2,000,000