Reese, Inc. produces pliers. Each pair of pliers sells for $8.00. Variable costs per unit total $5.60 of which $2.50 is for direct materials and $2.10 is for direct labour.
-If the break-even volume in sales dollars is $578,400, then the total fixed costs for the period must be
A) $173,520.
B) $144,600.
C) $206,570.
D) $251,747.

Question

Quizplus · Accepted Answer

The break-even point in sales dollars is calculated as Fixed Costs / Contribution Margin Ratio. The contribution margin per unit is $8.00 - $5.60 = $2.40. The contribution margin ratio is $2.40 / $8.00 = 0.30. Therefore, Fixed Costs = $578,400 * 0.30 = $173,520.