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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 m
b. $ 2.027 m
c. $ 2.708 m
d. $ 2.802 mHi John, I find it confusing on how I need to use the 48% of sales as the denominator to get the excess amount of sales needed to breakeven. Please advise. Thanks!
If the variable costs are 52% of sales, then for every 100 sales revenue the variable costs are 52.
Therefore for every 100 sales revenue, the contribution is 100 – 52 = 48.
So the CS ratio is 48/100 = 48%. So, as explained in my free lecture, the sales need to be fixed costs/48% (although here this only applies to the extra sales over and above 1.5M)
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