Franklin Company is a medium-sized manufacturer of bicycles.During the year a new line called "Radical" was made available to Franklin's customers.The break-even point for sales of Radical is $250,000 with a contribution margin ratio of 40 percent.Assuming that the profit for the Radical line during the year amounted to $80,000,total sales during the year would have amounted to:
A)$450,000.
B)$420,000.
C)$400,000.
D)$475,000.

Question

Quizplus · Accepted Answer

Contribution margin = Sales - Variable costsContribution margin ratio = Contribution margin / SalesBreak-even point = Fixed costs / Contribution margin ratioSales = Fixed costs / (1 - Contribution margin ratio)Sales = $250,000 / (1 - 0.40) = $416,666.67Profit = Sales - Variable costs - Fixed costsProfit = Sales - (1 - Contribution margin ratio) * Sales - Fixed costsProfit = Sales * Contribution margin ratio - Fixed costs$80,000 = $416,666.67 * 0.40 - Fixed costsFixed costs = $120,000Sales = Fixed costs / (1 - Contribution margin ratio)Sales = $120,000 / (1 - 0.40) = $200,000Total sales during the year would have amounted to $416,666.67 + $200,000 = $616,666.67

Franklin Company Is a Medium-Sized Manufacturer of Bicycles