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Forums › ACCA Forums › ACCA MA Management Accounting Forums › Break even
the breakeven sales revenue for a company for a period is $750,000.Fixed costs total $300,000 in the period.what sales revenue is required in the period to achieve a profit of $60,000
1)$ 1050000
2) $850000
3) $900000
4)$ 810000?
Answer is 900000
you know the fixed cost and you know the revenue of sales to breakeven.
what you should know is that once your contribution from sales cover total fixed costs, you break even at that point. So if at 750,000 of sales we are breaking even that means that 300000 is the contribution out of 750000,,,, which means CS ratio is 300000/750000=0.4
now once we got CS ratio we can do it by two ways
one way is we can add total contribution we need to achieve our target which would be first 300000 so we break even and then 60000 so we generate that profit adding them both and divide it by cs ratio will give us the amount of revenue we need to generate
other way is that we divide the profit by CS ratio to see how much revenue we need to get to have that much profit and add the 750000 revenue to it. since we need to cover the fixed costs first and then generate profit