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A company produces and sells a single product. Budgeted sales are $2.4 million, budgeted fixed costs are $360,000 and the margin of safety is $400,000. What are budgeted variable costs?
Could you please explain me the below calculation of contribution:
Breakeven sales = $(2.4 million – 400,000) = $2,000,000
Contribution at this level of sales = $360,000
At breakeven the contribution must be equal to the fixed costs and so will be $360,000 in this question.
Given that the contribution is by definition the sales less the variable costs, the variable costs must be 2,000,000 – 360,000.
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