Corner Cupcakes Co. is selling cupcakes for $8 for a box of four. Corner has fixed costs equaling $8,800 per month, 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 are $8,800 per month, and each box sells for $8 with a contribution margin ratio of 55%, then the contribution margin per box of donuts sold is $4.40 ($8 × 55%), and the break-even point is 2,000 boxes per month ($8,800 ÷ $4.40). If fixed costs increase by $1,760 per month, then fixed costs become $10,560 ($8,800 + $1,760), and the break-even point becomes 2,400 boxes ($10,560 ÷ $4.40), representing an increase of 400 boxes of donuts sold.