Porter Productions sells video tapes for $15.00 each. Their variable cost per unit is $9.00. In addition, they incur $180,000 in fixed costs each year. What is the Porter's annual breakeven point in sales revenue?
A)$30,000
B)$180,000
C)$300,000
D)$450,000
E)$720,000

Question

Quizplus · Accepted Answer

The breakeven point in sales revenue is calculated by dividing the fixed costs by the contribution margin ratio. The contribution margin per unit is the selling price minus the variable cost ($15 - $9 = $6). The contribution margin ratio is the contribution margin per unit divided by the selling price ($6 / $15 = 0.4). To find the breakeven point in sales revenue, divide the fixed costs by the contribution margin ratio ($180,000 / 0.4 = $450,000).

Porter Productions Sells Video Tapes for $15