Pascal Inc. is planning to sell 900000 units for $1.50 per unit. The contribution margin ratio is 20%. If Pascal will break even at this level of sales what are the fixed costs?
A) $270000.
B) $630000.
C) $900000.
D) $1020000.

Question

Quizplus · Accepted Answer

Fixed costs can be calculated using the formula: Fixed Costs = Total Sales - (Variable Costs + Fixed Costs). Given the contribution margin ratio (20%), we can find the total contribution margin (Total Sales * Contribution Margin Ratio) = 900,000 units * $1.50/unit * 20% = $270,000. Since Pascal Inc. breaks even, the total contribution margin equals the fixed costs, which are $270,000.