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Please refer to the followind MCQ:
A company has fixed costs of $1.3 million. Variable costs are 55% of sales up to a sales level of $1.5 million, but at higher volumes of production and sales, the variable cost for incremental production units falls to 52% of sales.What is the breakeven point in sales revenue, to the nearest$1,000?
A $1,977,000
B $2,027,000
C $2,708,000
D $2,802,000Thanks.
For sales of 1.5M, the contribution is 45% x 1.5M = 675,000.
For breakeven we need the contribution to be 1.3M and so we need an extra 625,000 contribution.
The new CS ratio is 48%, so divide the extra contribution needed by the CS ratio in order to determine the extra sales needed.
I assume that you have watched my free lectures on CVP analysis? The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
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