Corner Cupcakes Co. is selling cupcakes for $8 for a box of four. Corner has fixed costs equaling $105,600 per year, and its accountant has calculated the contribution margin ratio on each box of donuts to be 55%. Based on this information, which of the following statements is correct?

Question

Quizplus · Accepted Answer

Break-even is equal to the point at which sales in units multiplied by contribution margin is equal to total fixed costs. If fixed costs equal $105,600 per year, then they equal $8,800 per month ($105,600 ÷ 12 months). The break-even point is therefore the point at which contribution margin is $8,800 per month. If each box sells for $8 and the contribution margin ratio per box is 55%, then the contribution margin per box of donuts sold is $4.40 ($8 × 55%). If fixed costs are $8,800 per month, then $8,800 ÷ $4.40 = a break-even point of 2,000 boxes per month. If 2,200 boxes of donuts are sold in a given month, this will result in a contribution margin of $4.40 × 2,200 boxes = $9,680. This amount minus the monthly fixed costs of $8,800 equals $880 of operating profit for the month.