Break Even question — OpenTuition Forums

Sshiksha8y ago

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 $2,802,000 Thanks.

John MoffatTutor8y ago#1

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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